Does paying for the purchase of another company with shares create value for the buying company’s shareholders? The answer is yes, at least for buyers whose shares are overvalued on the stock market, according to research published in November in the United States. Professors at Wharton and Kellogg business schools say that they found support for the theory that mergers and acquisitions funded by shares benefit the buyer’s long-term shareholders, since the company converts the overpricing of its shares into actual assets.

The study is based on the assumption that over-valued companies have greater incentive to perform acquisitions using shares. To arrive at these results, the researchers compared the returns of companies that performed acquisitions with those who announced an acquisition, but failed to close the deal. Over a one-year period, companies who failed to complete acquisitions had 13.6% lower returns that successful companies. The difference rose to 22.2% in the second year and 31.2% after three years.

One example is the AOL-Time Warner merger, one of the landmarks in the dot-com bubble. “Despite the high premium paid by AOL and the fall of their share prices after the announcement, today the transaction is almost universally remembered as beneficial to AOL’s long-term shareholders, not because of the synergies it brought, but simply because AOL’s shares were overpriced at that time”, the professors said.