Impact of SOX on the returns to targets and acquirers in corporate tender offers

We argue that, following the sweeping reforms introduced by the Sarbanes-Oxley Act (SOX), managers of bidding firms have become more strategic in choosing acquisition targets in inter-firm tender offers. Using a large sample of tender offers between 1996 and 2009, we report that the proportion of synergy-driven value-maximizing acquisitions increased following the passage of SOX. Targets experience lower pre-bid share price run-up, receive larger deal premiums, and have larger announcement period abnormal returns after SOX. Acquiring firm shareholders also experience significant wealth gains around the announcement in the post-SOX period. Employing industry and matched firm portfolios, we also document that both the operating performance and buy-and-hold abnormal returns over the three- and five-year post-acquisition period improved significantly after SOX. Overall, our evidence shows that SOX had a positive influence in the market for inter-firm tender offers.