Bidder Companies and Defended Bids: A Test of Roll's Hubris Hypothesis

Published reviews of the extensive body of research into mergers and acquisitions have generally concluded that shareholders as a body are not adversely affected by acquisition activity. For example Jensen and Ruback (1983) conclude that ‘corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose’. In a review of more recent research, however, Jarrell, Brickley and Netter (1988) conclude that acquirers ‘receive at best modest increases in their stock price, and the winners of bidding contests suffer stock‐price declines as often as they do gains’.