TY - JOUR

T1 - The impact of M&A announcements on stock prices of the bidding firm - Event study based on German and US-listed firms

AU - Müller-Bosse, Sebastian

AU - Bouzzine, Yassin Denis

PY - 2019/9/30

Y1 - 2019/9/30

N2 - The capital market reaction on M&A announcements of the bidding firm is a complex topic, which implies contradictory opinions. Some argue that the market reacts positively to an announcement as synergies and value maximization can be realized. Others argue the other way round as the commitment to M&A can be a manifestation of agency problems or management overconfidence. This empirical study examines the question of the effect of M&A announcements on the stock price of the respective bidding firm. Therefore, the abnormal returns of the announcements are measured using the widely used market- and Fama and French’s (1993) 3-factor model. The sample consists of 60 M&A announcement events for the period of 1998 – 2017, whereas 30 firms refer to the German and 30 firms refer to the US market. To test for robustness, we have used parametric and non-parametric test procedures. In accordance with the theory and the prevailing literature, abnormal returns are mostly insignificant. Our comparison of German and US-listed firms revealed that US firms rather realize negative abnormal returns, whereas German firms realize positive abnormal returns. The results hold across variations in models and event windows.

AB - The capital market reaction on M&A announcements of the bidding firm is a complex topic, which implies contradictory opinions. Some argue that the market reacts positively to an announcement as synergies and value maximization can be realized. Others argue the other way round as the commitment to M&A can be a manifestation of agency problems or management overconfidence. This empirical study examines the question of the effect of M&A announcements on the stock price of the respective bidding firm. Therefore, the abnormal returns of the announcements are measured using the widely used market- and Fama and French’s (1993) 3-factor model. The sample consists of 60 M&A announcement events for the period of 1998 – 2017, whereas 30 firms refer to the German and 30 firms refer to the US market. To test for robustness, we have used parametric and non-parametric test procedures. In accordance with the theory and the prevailing literature, abnormal returns are mostly insignificant. Our comparison of German and US-listed firms revealed that US firms rather realize negative abnormal returns, whereas German firms realize positive abnormal returns. The results hold across variations in models and event windows.

KW - Management studies

KW - M&A

KW - Capital market

KW - Stock price

KW - bidding firm

UR - http://managementstudies.org/index.php/files/issue/view/3

M3 - Journal articles

VL - 9

SP - 86

EP - 94

JO - Management Studies

JF - Management Studies

SN - 2699-1187

IS - 3

ER -