We measure the impact of acquisitions activity on firm value by differentiating between specific merger events and programs of acquisition activity. Based on a sample of conglomerate acquirers, we find significantly positive abnormal performance associated with the announcement of acquisitions programs and significantly negative performance associated with certain institutional changes of 1967–1970 relating to acquisition activity (the Williams Amendments, the 1969 Tax Reform Act, and APB Opinions 16 and 17). Our results support the hypotheses that acquisitions activity had a favorable ex ante impact on the value of firms announcing an intention to engage in acquisitions, and that some of the institutional changes reduced the expected profitability of future acquisitions activity. The basic results of studies of mergers and tender offers are reviewed and their consistency with our findings highlighted.

We develop a model wherein the choice between adjustable- and fixed-rate debt can serve as a signal of firm quality. The nature of the signal depends on expected inflation volatility relative to other risk parameters. Evidence from a matched sample of debt announcements over the period 1978 to 1986 shows a difference of - 2.05 \ \rm percent between stock price reactions to adjustable rate and fixed rate announcements when expected inflation volatility is above an estimated threshold. Below this threshold, the difference is +0.98 \ \rm percent. The evidence supports the hypothesis that the riskier debt choice serves as a favorable signal of firm quality.

Pete Clarkson, Jose Guedes, Rex Thompson, On the Diversification, Observability, and Measurement of Estimation Risk, The Journal of Financial and Quantitative Analysis, Vol. 31, No. 1 (Mar., 1996), pp. 69-84

ABSTRACT Do preoffer target stock price runups increase bidder takeover costs? We present model‐based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one‐for‐one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large‐sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.