Value creation from M&As: New evidence

Abstract

M&A deals create more value for acquiring firm shareholders post-2009 than ever before. Public acquisitions fuel positive and statistically significant abnormal returns for acquirers while stock-for-stock deals no longer destroy value. Mega deals, priced at least $500 mil, typically associated with more pronounced agency problems, investor scrutiny and media attention, seem to be driving the documented upturn. Acquiring shareholders now gain $62 mil around the announcement of such deals; a $325 mil gain improvement compared to 1990-2009. The corresponding synergistic gains have also catapulted to more than $542 mil pointing to overall value creation from M&As on a large scale. Our results are robust to different measures and controls and appear to be linked with profound improvements in the quality of corporate governance among acquiring firms in the aftermath of the 2008 financial crisis.

The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

“…The event-study method enables us to estimate the effect that an event has on firms' securities (Fama et al, 1969;MacKinlay, 1997). However, traditional event studies only estimate abnormal returns of stocks around M&A announcements (Akhigbe & Madura, 2001;Alexandridis et al, 2017;Amihud et al, 2002;Balaban & Constantinou, 2006;Eckbo, 1983;Elyasiani et al, 2016;Goddard et al, 2012;Hankir et al, 2011;Houston & Ryngaert, 1994;Humphery-Jenner et al, 2017). Because the objective of this article is to analyze the effect of M&A announcements on the mean and variance of bank returns, we conduct a GARCH event study, which allows us to estimate the impact of M&A announcements on stocks' mean and variance of acquirer, target, and rival banks.…”

“…In that respect, a large proportion of the financial literature about M&As focuses on the performance of the firms involved in the deals and the impact on their stakeholders (Alexandridis, Antypas, & Travlos, 2017;Cortés, García, & Agudelo, 2015;De Young, Evanoff, & Molyneux, 2009;Jensen & Ruback, 1983). Performance is generally evaluated in market terms, i.e., how M&A announcements affect firm securities.…”

“…Therefore, the empirical literature has evaluated the two effects of M&As: on the creation of value for shareholders and on market volatility. This evaluation is generally conducted separately (Alexandridis et al, 2017;Amihud, DeLong, & Saunders, 2002;Bozos, Koutmos, & Song, 2013;Chang & Cho, 2017;Eckbo, 1983;Humphery-Jenner et al, 2017;Nain & Wang, 2016;Song & Walkling, 2000).…”

“…Akhigbe and Madura (2001) find positive and significant valuation effects for publicly traded acquirer and target insurance companies. In general, the positive effects can be explained by the market power obtained by firms due to the deal, the reduction in information asymmetry about companies, and improvement in corporate governance policies (Alexandridis et al, 2017;Hankir et al, 2011;Humphery-Jenner et al, 2017);…”

The Effect of the Profitability on the Valuation Models: Evidence from Italian Acquisitions

“…Hence the clarification of the research question that will accompany the entire study: does the book-to-market ratio manage to appreciate the economy of a company in times of economic-financial crisis and, as a result, of strategic M&A choices? (See Alexandridis, Antypas, & Travlos, 2017;Fraunhoffer, Kim, & Schiereck, 2018;Liberatore, 2010 andLiberatore, Amaduzzi, Comuzzi, &Ferraro, 2014;Magli, Nobolo, & Ogliari, 2017).…”