Consider the following two statements: (i) Event studies show that returns on the buyer's equity are positive around the time of the
Announcement of sale, suggesting that sell-offs create value to the buyer.
(ii) Event studies show that acquisitions are often sold off down the road.
A)(i) is correct, (ii) is incorrect.
B)(ii) is correct, (i) is incorrect.
C)Both (i) and (ii) are correct.
D)Both (i) and (ii) are incorrect.
E)None of the above.

Question

Quizplus · Accepted Answer

(i) is incorrect because event studies typically show that returns on the buyer's equity are, on average, zero or negative around the time of the announcement of an acquisition, suggesting that acquisitions do not always create value for the buyer. (ii) is correct because empirical evidence shows that a significant portion of acquisitions are indeed sold off or divested in the years following the acquisition, indicating that not all acquisitions meet the strategic or financial objectives that motivated them.

Consider the Following Two Statements: (I) Event Studies Show That