Stock market driven acquisitions versus the Q theory of takeovers: The UK evidence

Xiao Gang Bi, Alan Gregory

Research output: Journal PublicationArticlepeer-review

39 Citations (Scopus)


Using a sample of UK mergers and acquisitions from 1985-2004, we show that equity over-valuation appears to play an important role in the determination of financing method. Our results are broadly consistent with those theories based upon market over-valuation driving mergers and their financing, rather than a Q-theory explanation. In some contrast to the US results of Dong et al. (2006) we find that proxies for over-valuation appear to be the more persuasive explanation for acquisition financing behaviour in the UK. Given the evidence in favour of valuation effects, we argue that a treatment effects model is necessary in investigating the long-run performance of acquirers. Taken together with results from a univariate analysis, such a model reveals some modest support for the Shleifer and Vishny (2003) hypothesis.

Original languageEnglish
Pages (from-to)628-656
Number of pages29
JournalJournal of Business Finance and Accounting
Issue number5-6
Publication statusPublished - Jun 2011

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance


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