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.