Acquisitions and the value versus growth phenomenon

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dc.contributor.author Badenhorst, Wessel M.
dc.date.accessioned 2016-04-21T07:50:59Z
dc.date.available 2016-04-21T07:50:59Z
dc.date.issued 2016
dc.description.abstract PURPOSE : To investigate whether investors value the future growth from acquisitions and the subsequent realisations thereof accurately. DESIGN / METHPDOLOGY / APPROACH : The paper calculates conventional and adjusted market-to-book ratios and investigates abnormal cumulative returns over 20 quarters after portfolio formation for a sample of S&P 500 firms using a hedge portfolio and regression approach. FINDINGS : Hedge portfolios formed using adjusted market-to-book ratios underperform conventional hedge portfolios over a five year period. Dividing the hedge into its comprising elements reveals that the underperformance of the adjusted hedge is mainly caused by weaker returns from value firms. RESAERCH LIMITATIONS / IMPLICATIONS : Findings are specific to large firms in a specific setting and future research is needed to determine if findings are equally applicable to other situations. Findings imply that investors underrate the growth from new acquisitions and overrate the extent to which this has materialised. PRACTICAL IMPLICATIONS : The study highlights that the extrapolation of future growth rates should be carefully considered in any equity valuation of a firm with current or past acquisitions. ORIGINALITY / VALUE : This study shows that inaccurate valuation of the growth of new acquisitions and the realisation thereof is at least partially responsible for the value versus growth phenomenon. It shows that the accounting information could be improved and highlights the importance of extrapolating past growth rates with care . en_ZA
dc.description.department Accounting en_ZA
dc.description.librarian hb2016 en_ZA
dc.description.uri http://www.emeraldinsight.com/loi/medar en_ZA
dc.identifier.citation Wessel M. Badenhorst , (2016) "Acquisitions and the value versus growth phenomenon", Meditari Accountancy Research, Vol. 24 Iss: 1, pp.56 - 72. en_ZA
dc.identifier.issn 2049-372X
dc.identifier.other 10.1108/MEDAR-01-2015-0005
dc.identifier.uri http://hdl.handle.net/2263/52093
dc.language.iso en en_ZA
dc.publisher Emerald en_ZA
dc.rights © Emerald Group Publishing Limited en_ZA
dc.subject Value en_ZA
dc.subject Growth en_ZA
dc.subject Hedge en_ZA
dc.subject Goodwill en_ZA
dc.subject Value-relevance en_ZA
dc.title Acquisitions and the value versus growth phenomenon en_ZA
dc.type Postprint Article en_ZA


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