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The Impact of the Announcement of Acquisition of Divested Assets on Buyers’ Wealth - Asset Fit and Disclosure of Funds Used: Evidence from the U.K.

Multinational Finance Journal, 2008, vol. 12, no. 3/4, pp. 219-240
Robert Faff , Monash University, Australia
Roger Love , Monash University, Australia
Andrew Menon , Monash University, Australia

Abstract:
This study examines the effects of announcements of acquisition of assets on shareholder wealth of buyers over the period January 2000 to December 2002 in the U.K. Significant positive announcement period abnormal returns for ‘fit’ acquisitions of divested assets that disclosed the “sources of funds” are documented. Multivariate regression analysis shows that announcement period abnormal returns are significantly related to pre-announcement period abnormal returns, relative size of the acquisitions and disclosure of sources of funds. Overall, there is little or no support for the asset fit hypothesis. However, there is strong support for “Fund Source Disclosure”, “Fund Source Pecking-Order” and “Relative Size of Acquisition” Hypotheses .

Keywords : divested asset acquisition; buyers; price reaction; fit and non-fit; fund source
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