The Effect of Targets’ Organizational Capital on Acquirers’ Abnormal Returns

Abstract

Literature has shown that organizational capital is an important production factor and is positively related with firm value, Tobin’s Q, stock returns and executive compensation. We examine whether this organizational capital functions well in another firm in a merger. Results show that acquirers experience higher announcement abnormal returns when the targets have higher organizational capital and this effect strengthens in non-diversifying acquisitions and when acquirers have better corporate governance.