Publication
Announcement returns and post-merger performance: evidence of M&A momentum in the European Union market
| Summary: | This study examines the short-term stock price reaction to an acquisition announcement and the long-term post-performance in order to test the existence of a momentum effect in mergers and acquisitions (M&A). The stock price reaction to the announcement of an acquisition is measured by the cumulative abnormal announcement returns (CAARs), while the long-run performance is estimated using the buy-and-hold abnormal returns (BHARs). Using a sample of 3,496 European Union (EU) completed acquisitions between 2002 and 2012, I find evidence of merger momentum by showing that (1) acquirers are more likely to obtain higher CAARs in period of “hot merger markets” (i.e., when previous recent acquirers have also earned higher announcement returns) and (2) the higher abnormal announcement returns tend to revert in the long-run, with acquirers exhibiting lower BHARs. These results are in line with the investor sentiment (optimism) hypothesis in hot merger markets. Further, the findings hold after several robustness tests, including industry fixed effects and the elimination of consecutive acquisitions by the same acquirer that occur in a small time window. |
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| Main Authors: | Pereira, Inês Cunha Rocha |
| Subject: | Mergers & acquisitions Merger momentum Long-run reversal Over-optimism hypothesis Fusões e aquisições Rendibilidades anormais Momentum Excesso de otimismo Ciências Sociais::Economia e Gestão |
| Year: | 2016 |
| Country: | Portugal |
| Document type: | master thesis |
| Access type: | open access |
| Associated institution: | Universidade do Minho |
| Language: | English |
| Origin: | RepositóriUM - Universidade do Minho |
| Summary: | This study examines the short-term stock price reaction to an acquisition announcement and the long-term post-performance in order to test the existence of a momentum effect in mergers and acquisitions (M&A). The stock price reaction to the announcement of an acquisition is measured by the cumulative abnormal announcement returns (CAARs), while the long-run performance is estimated using the buy-and-hold abnormal returns (BHARs). Using a sample of 3,496 European Union (EU) completed acquisitions between 2002 and 2012, I find evidence of merger momentum by showing that (1) acquirers are more likely to obtain higher CAARs in period of “hot merger markets” (i.e., when previous recent acquirers have also earned higher announcement returns) and (2) the higher abnormal announcement returns tend to revert in the long-run, with acquirers exhibiting lower BHARs. These results are in line with the investor sentiment (optimism) hypothesis in hot merger markets. Further, the findings hold after several robustness tests, including industry fixed effects and the elimination of consecutive acquisitions by the same acquirer that occur in a small time window. |
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