Relative equity market valuation conditions and acquirers’ gains

We examine whether the relative equity market valuation conditions (EMVCs) in the merging firms countries help acquirers’ managers to time the announcements of domestic and foreign target acquisitions. After controlling for several deal- and merging firms-specific features we find that acquisition activity, as well as acquirers gains, are significantly higher during periods of high-EMVCs at home, irrespective of the domicile of the target. We also find that the higher foreign acquirers’ gains that reaped during periods of high-EMVCs at home are realized by deals of targets based in the RoW (=World-G7), rather than G6 (=G7-UK) countries, which is due to the low correlation of EMVCs between the U.K. (home) and the RoW countries. Moreover, acquisition of targets domiciled in the RoW (G6) countries yield higher (lower) gains than domestic targets during periods of high-EMVCs at home. This suggests that the relative EMVCs between the merging firms’ countries allow acquirers’ managers to time the market and acquire targets at a discount, particularly in countries in which acquirers’ stocks are likely to be more overvalued than the targets’ stocks.