PROFITABILITY OF ACQUISITIONS AND THE EFFECT OF OWNERSHIP STRUCTURE IN SHORT-TERM

Abstract

The purpose of this study is to give a reader a comprehensive overview of motivations behind corporate acquisition and answer to question does the CEO ownership or family ownership matter for the short-term profitability of those transactions. This study’s main contribution to the field is its focus ownership structure and its effect on acquisitions profitability. Previous literature states that reasons behind companies’ motivations to acquire vary but many of the bias reasons are related with management’s selfies motives or overconfidence.

The opinions about the profitability of acquisitions divide scholars among the area. Even though there is not clear consensus among scholars are the acquisitions profitable in average, certainly there are pitfalls that companies can avoid to create better starting points for acquisitions.

In the empirical part of the paper results on ownership structures effect on acquisition profitability are clear. CEO ownership and family ownership are both significant at 5 % significance level during the sample period of ±5 days from announcement. Companies belonging to group with higher CEO ownership percentage than median have higher Cumulative Abnormal Return. However, family ownership results decrease in Cumulative Abnormal Return.