RT Journal Article
SR Electronic
T1 The EPS Myopia Hypothesis and Post-Merger Market Performance of Acquiring Firms
JF The Journal of Investing
FD Institutional Investor Journals
SP 7
OP 15
DO 10.3905/joi.2002.319490
VO 11
IS 1
A1 Stanley B. Block
YR 2002
UL https://pm-research.com/content/11/1/7.abstract
AB This study examines the effect of EPS “myopia” on the abnormal returns of acquiring firms in mergers. Earnings per share myopia may be defined as a disproportionate emphasis or fixation on the immediate postmerger impact of a merger on earnings per share as opposed to a consideration of longer-term consequences. The near-term emphasis is on avoiding dilution at a minimum, and, more optimally, on creating earnings accretion. These outcomes are often accomplished through the use of P/E ratio differentials between the participating firms and the use of pooling of interests accounting. The results of this research indicate a statistically significant negative relationship between mergers that have a high immediate impact on EPS and the stock market performance of the acquiring firm 24 to 36 months after the merger.