The phenomenon of acquisitions has attracted research
interest in the finance literature partly because of its
impact on the u.s economy during the decade of the eighties.
Whereas an impressive body of knowledge has been accumulated
on this subject thus far, the hospitality literature has no
empirical studies that seek to explain the nature of this
phenomenon in the hospitality industry. Of particular
interest in this study was the impact of acquisitions on the
shareholder wealth of target hotel and restaurant
shareholders.
Therefore, there were three purposes in this study: 1) to
determine whether stockholders of target hotel and restaurant
companies involved in acquisitions earned significant
additional wealth, 2) to determine whether there is a
difference in the average size of additional wealth created in
acquisitions involving hospitality companies versus those
involving non-hospitality companies, and 3) to determine whether there is a difference in the average size of
additional shareholder wealth accruing to hotel versus
restaurant shareholders.
The sample consisted of 39 restaurant and 18 hotel target
companies acquired between 1980 and 1990. The datasource was
the University of Chicago's Center for Research in Securities
Prices (CRSP) database. The market model was used to predict
stock returns for the target companies thirty days before and
after the announcement of the acquisition. The difference
between the predicted returns and actual returns for each
trading day during this period constituted the abnormal
return. The average abnormal returns for all the companies
per trading day were cumulated and their significance
determined.
The results showed that the size of the additional
shareholder wealth created when the restaurant companies were
acquired was 8.86%, hotels was 29.86%, while the combined
sample was 15.47%. These resul ts provided evidence that hotel
and restaurant shareholders earn significant abnormal returns
during an acquisition, and that there is a significant
difference in the size of additional shareholder wealth
accruing to hospitality companies versus non-hospitality ones.
Furthermore, there was a difference in the average size of
abnormal returns earned by hotel shareholders versus
restaurant shareholders.
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