Do mergers create value for high-tech firms? The hounds of dotcom bubble

Using both 1078 high-tech target deals (divided into 244 cross-border and 834 domestic deals), and the market model, this study examines the performance of bidders acquiring high-tech US targets in the short run and long run. The study also aims to bridge the gap in knowledge between the bidder's performance during 2007–2014, and the dotcom bubble period of 1996–2002. We use event study methodology to measure the abnormal returns (CARs) and (BHAR), and the change in the value of bidders that acquire high-tech targets. We find positive abnormal returns for the domestic bidders during 2007–2014, thereby implying that the domestic bidders earn more wealth than the cross-border bidders. Additionally, we find that abnormal returns are higher after the dotcom bubble period of 1997–2002: in particular during the period 2007–2014 for short-term domestic performance. We also find supportive evidence that cash-rich bidders required high-tech targets to seize growth opportunities, and consequently earned high abnormal returns. Overall, our results suggest that investors and bidders are overoptimistic about the future performance of high-tech mergers, and have increased their expectations overtime, in particular for domestic bidders and investors during the bubble and short-term periods.