A study of the Effect of Acquisition Premium on Acquirer Returns in Tehran Stock Exchange

This research presents a study concerning the relationship between acquisition premium and acquirer returns in acquisition transactions to examine whether the acquirers have been able to earn back the paid premiums through post-acquisition returns after the acquisition. This study is based on data gathered through acquisitions during the period between 2001 and 2006 at Tehran Stock Exchange (TSE). One-sample t-test is used to examine the target firm’s yearly stock returns in the three years following the acquisition to find out if post-acquisition stock returns compensate the paid premiums in the acquisitions. Target firms are ranked by acquisition premium and partitioned into three portfolios: low، medium and high premium portfolios. The results show that in the high premium portfolio، the stock returns compensate the premiums in the the third year after the acquisition. However، for the low and medium premium portfolios، they compensate only the first year after the acquisition. Also adjusted stock returns could compensate for the premiums in the low، medium and high premium portfolios respectively in the first، second and third years.