The underperformance of equity‐financed bidders

Purpose – The purpose of this paper is to investigate bidder and target returns in the time surrounding merger and acquisition (M&A) announcements. Design/methodology/approach – The paper employs parametric and non‐parametric tests and regressions on holding period and abnormal returns to bidder and targets using indicators for equity and mixed financing, hostility, and Fama‐French SMB and HML factors. Findings – The paper provides evidence that the cumulative average abnormal returns to shareholders of bidder companies in equity financed mergers following an M&A announcement are significantly negative. Practical implications – The paper highlights the fiduciary duty of bidder company management and M&A advisory professionals to bidder company shareholders. Originality/value – The paper updates the limited research on hostility and bidder returns in Australian M&A literature by re‐examining the share price performance over various windows and controlling for the Fama‐French factors.