In Malaysia, the studies on mergers and takeovers are still very scarce due to the infancy of the Malaysian equity market. With the introduction of the New Economic Policy in 1970, there has been an increase of corporate takeovers and mergers. In the light of other relevant empirical literature on the subject from different established equity markets, an attempt is made to determine the effects of acquisition announcement on the price behavior of the Malaysian bidder and target firms. The study uses the daily common stock returns of the Kuala Lumpur Stock Exchange for 200 days before the acquisition announcement date and 200 days after. The results indicate that, for some acquisitions, positive information concerning a forthcoming corporate takeover is considered good news for the shareholders of target firms. In the short term, the evidence on the significant negative changes after the announcement may suggest that the bidders have over-estimated the future efficiency of the gains from the merger.