Event Studies for Merger Analysis: An Evaluation of the Effects of Non-Normality on Hypothesis Testing

Ford, George S.; Kline, Audrey D.

doi:10.2139/ssrn.925953

Cited by 7 publications

(4 citation statements)

References 44 publications

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“…Among these, perhaps the most interesting are those based on the bootstrap, which have been examined in a number of studies, including Kramer (2001), Hamill et al (2002), Chou (2004), Hein and Westfall (2004), Jackson et al (2006), Baixauli (2007), Ford and Kline (2007), and Corrado and Truong (2008). So far, evidence on bootstrap performance has been mixed and appears to vary with the type of problem to which it is applied.…”

Section: 'Brown and Warner' Methodology Studiesmentioning

confidence: 99%

Event studies: A methodology review

Corrado

2010

Accounting &Amp; Finance

306

105

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Originally developed as a statistical tool for empirical research in accounting and finance, event studies have since migrated to other disciplines as well, including economics, history, law, management, marketing, and political science. Despite the elegant simplicity of a standard event study, variations in methodology and their relative merits continue to attract attention in the literature. This paper reviews some of the fundamental topics in short-term event study methodology, with an attempt to add new perspectives to some pressing topics.

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Section: 'Brown and Warner' Methodology Studiesmentioning

confidence: 99%

Event studies: A methodology review

Corrado

2010

Accounting &Amp; Finance

306

105

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“…The bootstrapped OLS critical values diverge from the nominal values of 1.96, which is somewhat expected, but are not far off (Ford and Kline, 2006;Jackson et al, 2006). However, the same cannot be said of tests based on t W and t N .…”

Section: Hac Ses and Merger Event Studiesmentioning

confidence: 69%

“…The event study is frequently used to evaluate the expected impacts of mergers and regulatory events. Ford and Kline (2006) and Cichello and Lamdin (2006) provide recent reviews of the literature, so we do not detail the application here. In essence, the response of stock prices to merger announcements (or other events) indicates investor expectations about changes in the profits of the merging parties and their competitors (or alleged competitors), which may indicate either market power or efficiency expectations from the combination.…”

Section: Hac Ses and Merger Event Studiesmentioning

confidence: 99%

HAC standard errors and the event study methodology: a cautionary note

Ford

Jackson

Skinner

2010

Applied Economics Letters

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In support of Fomby and Murfin's (2005) article published in this journal, we demonstrate empirically, rather than theoretically, the severe consequences of using Heteroscedasticity and Autocorrelation Consistent (HAC) SEs in regression-based financial event studies. Applying an event study to a recent merger, we show that the use of HAC SEs render misleading conclusions. Critical values for t-tests on the event dummy variables are about 15 times larger than the nominal values using only a year of daily return data. Even with samples of only 100 returns, critical values exceed nominal critical values by a factor of 10.

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“…We estimate equation (7) using ordinary least squares with bootstrapped standard errors, which remain reliable even when the residuals exhibit heteroscedasticity, non-normality or time-series dependence (Ford and Kline, 2006;Hein and Westfall, 2004;Jackson et al, 2006;Kramer, 2000).…”

Section: An Event Study Methods To Identify Abnormal Returnsmentioning

confidence: 99%

Do Smoking Bans Always Hurt the Gaming Industry? Differentiated Impacts on the Market Value of Casino Firms in Macao

2016

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The gaming economy has expanded rapidly in East Asia over the past decade. Despite the known public health hazards of secondhand smoking, smoking bans in casinos remain controversial due to concerns over the potential economic harm to casino firms. Applying an event study, the authors examine the abnormal returns of casino stocks in response to three unexpected smoking ban announcements from 2011 to 2015 in Macao. Their analysis reveals that these announcements were associated with differentiated abnormal returns of casino stocks. Stocks of traditional casinos suffered abnormal losses of 0.58-3%, while the Las Vegas themed casinos enjoyed positive abnormal returns of up to 3%. Furthermore, the authors find that low air quality in gaming venues and high dependence on gaming revenues are associated with abnormal losses, while positive management initiatives are significantly correlated with positive abnormal returns. The findings of this study provide a full picture of the impacts of smoking bans on casinos and thus will be a useful policy references for the Macao government, as well as for the rapidly growing gaming industry in Asia and developing economies elsewhere. JEL L83 K32 Z33

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Event Studies for Merger Analysis: An Evaluation of the Effects of Non-Normality on Hypothesis Testing

Cited by 7 publications

References 44 publications

Event studies: A methodology review

Event studies: A methodology review

HAC standard errors and the event study methodology: a cautionary note

Do Smoking Bans Always Hurt the Gaming Industry? Differentiated Impacts on the Market Value of Casino Firms in Macao

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