Shareholders wealth and mergers and acquisitions (M&As)
-
DOIhttp://dx.doi.org/10.21511/imfi.14(3).2017.02
-
Article InfoVolume 14 2017, Issue #3, pp. 15-24
- Cited by
- 1591 Views
-
298 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
We re-examine the abnormal returns (ARs) around merger announcements using a large sample of 8,945 announcements. We estimate the ARs using the Carhart (1997) four-factor model under the standard ordinary least square (OLS) method and the Glosten et al.’s (1993) asymmetric GARCH specification (hereafter, GJR-GARCH). Under the OLS method, acquirers do not generate significant cumulative ARs (CARs) in line with prior work. Our new results, however, show that under the GJR-GARCH estimation, acquirers generate positive and significant cumulative CARs. We attribute the gains to the use of the GJR-GARCH estimation method, as the GJR-GARCH method is more effective in capturing conditional volatility and asymmetry in the excess returns.
- Keywords
-
JEL Classification (Paper profile tab)G34, C32, C34
-
References52
-
Tables5
-
Figures0
-
- Table 1. Descriptive statistics of M&As announced over the period 1991 to 2013
- Table 2. Average AR measures for acquirers and targets around merger announcements using the four-factor CAPM under the OLS method and the GJR-GARCH method
- Table 3. Bootstrapping simulations of AR measures for acquirers and targets around merger announcements
- Table 4. Average ARs measures around announcements for acquirers by payment method
- Table 5. Average AR measures around announcements for targets by payment method
-
- Andrade, G., Mitchell, M., Stafford, E. (2001). New evidence and perspectives on mergers. Journal of Economic Perspectives, 15, 103-120.
- Alexandridis, G., Petmezas, D., Travlos, N.G. (2010). Gains from mergers and acquisitions around the world: New evidence. Financial Management, 39, 1671- 695.
- Anslinger, P. L., Copeland, T. E. (1996). Growth through acquisitions: A fresh look. McKinsey Quarterly, 2, 96-109.
- Baillie, R. T., Bollerslev, T. (1989). The message in daily exchange rates: A conditional-variance tale. Journal of Business and Economic Statistics, 7, 297-305.
- Bi, G. X., Gregory, A. (2011). Stock market driven acquisitions versus the Q theory of takeovers: The UK evidence. Journal of Business and Accounting, 38, 628-656.
- Bigelli, M., Mengoli, S. (2004). Sub-optimal acquisition decision under a majority shareholder system. Journal of Management and Governance, 8, 373-405.
- Bild, M., Guest, P., Cosh, A., Runsten, M. (2002). Do takeovers create value? A residual income approach on UK data. (Working Paper). University of Cambridge.
- Brown, S. J., Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14, 3-31.
- Blonigen, B. A., Pierce, J. R. (2016). Evidence for the Effects of Mergers on Market Power and Efficiency. (Working Paper). University of Oregon.
- Boehmer, E., Masumeci, J., Poulsen, A. B. (1991). Event-study methodology under conditions of event-induced variance. Journal of Financial Economics, 30, 253-272.
- Campa, M. J., Hernando, I. (2006). Mergers and acquisitions performance in the European financial in industry. Journal of Banking and Finance, 30, 3367-3392.
- Carhart, M. M. (1997). On persistence in mutual fund performance. Journal of Finance, 52, 57-82.
- Carline, N. F., Linn, S. C., Yadav, P. K. (2009). Operating performance changes associated with corporate mergers and the role of corporate governance. Journal of Banking and Finance, 33, 1829-1841.
- Carletti, E., Hartmann, P., Ongena, S. (2015). The economic impact of mergers control legislation. International Review of Law and Economics, 42, 88-104.
- Chang, S. (1998). Takeover of privately held targets, methods of payment and bidder returns. Journal of Finance, 53, 773-784.
- Chatterjee, R. (2011). Mergers and acquisition: The impact of share price. Journal of Institute of Management Study, 11, 123-148.
- Dickerson, A. P., Gibson, H. D., Tsakalotos, E. (1997). The impact of acquisitions on company performance: evidence from a large panel of U.K firms. Oxford Economic Papers, 49, 344-361.
- Draper, P., Paudyal, K. (2006). Acquisitions: private versus public. European Financial Management, 12, 57-80.
- Dutta, S., Jog, V. (2009). The long-term performance of acquirer firms: A re-examination of an anomaly. Journal of Banking and Finance, 33, 1400-1412.
- Dutta, S., Saadi, S., Zhu, P. (2013). Does payment method matter in cross-border acquisitions? International Review of Economics and Finance, 25, 91-107.
- Dutordoir, M., Rosenboom, P., Vasconcelos, M. (2014). Synergy disclosures in mergers and acquisitions. International Review of Financial Analysis, 31, 88-100.
- Eckbo, E. B., Thorborn, S. K. (2000). Gains to bidder firms revisited: Domestic and foreign acquisitions in Canada. Journal of Financial and Quantitative Analysis, 35, 1-25.
- Erickson, M., Wang, S. W. (1999). Earnings management by acquiring firms in stock for stock mergers. Journal of Accounting and Economics, 27, 149-176.
- Faccio, M., McConnell, J. J., Stolin, D. (2006). Returns to acquirers of listed and unlisted targets. Journal of Financial and Quantitative Analysis, 41, 197-220.
- Fama, F. E., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3-56.
- Fama, F. E., & French, K. R. (1996). Multifactor explanations of asset pricing anomalies. Journal of Finance, 51, 55-84.
- Fuller, K., Netter, J., Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. Journal of Finance, 57, 1763-1793.
- Glosten, L. R., Jagannathan, R., Runkle, D. E. (1993). On the relation between the expected value and the volatility of the nominal excess return on stocks. Journal of Finance, 48, 1779-1801.
- Goergen, M., Renneboog, L. (2004). Shareholder wealth effects of European domestic and cross-border takeover bids. European Financial Management, 10, 9-45.
- Gregory, A., 1997. An examination of the long run performance of UK acquiring firms. Journal of Business Finance and Accounting, 24, 971-1002.
- Hillier, D., Grinblatt, M., Titman, S. (2011). Financial Markets and Corporate Strategy. Mcgraw Hill Irwin Publishers in Boston.
- Hackbarth. D., Morellec, E. (2008). Stock returns in mergers and acquisitions. Journal of Finance, 63, 1213-1252.
- Haleblian, J., Devers, C. E., McNamara, G., Carpenter, M. A., Davison, R. B. (2009). Taking stock of what we know about mergers and acquisitions: A review and research agenda. Journal of Management, 35, 469-502.
- Heron, R., Lie, E. (2002). Operating performance and the method of payment in takeovers. Journal of Financial and Quantitative Analysis, 37, 137-155.
- Lang, L. H. P., Stulz, R. M., Walking, R. A. (1989). Managerial performance, Tobin’s Q and gains from successful tender offers. Journal of Financial Economics, 24, 137-154.
- Leland, H. E. (2007). Financial synergies and the optimal scope of the firm: Implications for mergers, spinoffs, and structured finance. Journal of Finance, 62, 765-807.
- Lewis, D., & Webb, J. R. (2007). Potential cost synergies from banks acquiring real estate brokerage services. Journal of Banking and Finance, 31, 2347- 2363.
- Inoue, K., Uchida, K., Bremer, M. (2010). Post-restructuring performance in Japan. Pacific- Basin Finance Journal, 18, 494-508.
- Kolari, J. W., Pynnönen, S. (2010). Event study testing with cross sectional correlation of abnormal returns. Review of Financial Studies, 23, 3996-4025.
- Kothari, P. S., Warner, B. J. (1997). Measuring long-horizon security price performance. Journal of Financial Economics, 43, 301-339.
- Martin, K. J. (1996). The method of payment in corporate acquisitions, investment opportunities, and management ownership. Journal of Finance, 51, 1227-1246.
- Martynova, M., Oosting, S., Renneboog, L. (2007). The long-term operating performance of European mergers and acquisitions. In Gregoriou, G. and Renneboog L. (Eds.), International Mergers and Acquisitions Activity since 1990: Quantitative Analysis and Recent Research. Massachusetts, Elsevier.
- Moeller, S. B., Schlingemann, F. P., Stulz, R. M. (2005). Wealth destruction on a massive scale? A study of acquiring-firm returns in the recent merger wave. Journal of Finance, 60, 757-782.
- Myers, S. C., Majluf, N. S. (1984). Corporate financing and investment decisions when firms have Information investors do not have. Journal of Financial Economics, 13, 187-221.
- Napier, N. K. (1989). Mergers and acquisitions, human resource issues and outcomes: A review and suggested typology. Journal of Management Studies, 26, 271- 289.
- Reynolds, N.-S, Teerikangas, S. (2016). The international experience in domestic mergers – are purely domestic M&As a myth. International Business Review, 25, 42-50.
- Sharma, D. S., Ho, J. (2002). The impact of acquisitions on operating performance: Some Australian evidence. Journal of Business Finance and Accounting, 29, 155-199.
- Shleifer, A. A., Vishny, W. R. (2003). Stock market driven acquisitions. Journal of Financial Economics, 70, 295-311.
- Savor, P. G., Lu, Q. (2009). Do stock mergers create value for acquirers? Journal of Finance, 64, 1061-1097.
- Stunda, R. (2014). The market impact of M&As on acquiring firms in the U.S. Journal of Accounting and Taxation, 6, 30-37.
- Tuch, C., O’Sullivan, N. (2007). The impact of acquisitions on firm performance: A review of the evidence. International Journal of Management Reviews, 9, 141-170.
- Wong, B., Cheung, K., Mun, T. (2009). The effect of merger and acquisition announcements on security prices of acquiring firms. International Journal of Economics and Finance, 2, 119-132.