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Is the event study methodology useful for merger analysis? A comparison of stock market and accounting data

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Author Info

  • Duso, Tomaso
  • Gugler, Klaus
  • Yurtoglu, Burcin

Abstract

This paper presents empirical evidence about the ability of event studies to capture mergers' ex-post profitability as measured by accounting data. We use a sample of large horizontal concentrations during the period 1990-2002 involving 482 firms either as merging firms or competitors, and contrast a measure of the mergers' profitability based on stock market event studies with one based on balance sheet profit data. We show that using a long window around the announcement date (25 or 50 days before the event) increases the ability to capture the ex-post merger effect: the pairwise correlation coefficient is positive and highly significant.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 30 (2010)
Issue (Month): 2 (June)
Pages: 186-192

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Handle: RePEc:eee:irlaec:v:30:y:2010:i:2:p:186-192

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Mergers Merger control Event studies Ex-post evaluation;

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References

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  1. Goergen, M. & Renneboog, L.D.R., 2002. "Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids," Discussion Paper 2002-50, Tilburg University, Center for Economic Research.
  2. G. William Schwert, 1996. "Mark-Up Pricing in Mergers and Acquisitions," NBER Working Papers 4863, National Bureau of Economic Research, Inc.
  3. Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
  4. Kaplan, Steven N & Weisbach, Michael S, 1992. " The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-38, March.
  5. Tomaso Duso & Klaus Gugler & Burcin Yurtoglu, 2005. "EU Merger Remedies: A Preliminary Empirical Assessment," CIG Working Papers SP II 2005-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  6. Robert J. Shiller, 2002. "From Efficient Market Theory to Behavioral Finance," Cowles Foundation Discussion Papers 1385, Cowles Foundation for Research in Economics, Yale University.
  7. Tomaso Duso & Klaus Gugler & Burçin Yurtoglu, 2006. "How Effective is European Merger Control?," CIG Working Papers SP II 2006-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  8. Eugene F. Fama, . "Market Efficiency, Long-term Returns, and Behavioral Finance," CRSP working papers 340, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  9. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 121-144, Spring.
  10. Aboody, David & Kasznik, Ron & Williams, Michael, 2000. "Purchase versus pooling in stock-for-stock acquisitions: Why do firms care?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 261-286, June.
  11. Caves, Richard E., 1989. "Mergers, takeovers, and economic efficiency : Foresight vs. hindsight," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 151-174, March.
  12. Malatesta, Paul H., 1983. "The wealth effect of merger activity and the objective functions of merging firms," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 155-181, April.
  13. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
  14. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  15. Kasznik, Ron & Aboody, David & Williams, Michael, 2000. "Purchase versus Pooling in Stock-for-Stock Acquisitions: Why Do Firms Care?," Research Papers 1614, Stanford University, Graduate School of Business.
  16. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
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Citations

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Cited by:
  1. Tomaso Duso & Klaus Gugler & Florian Szücs, 2010. "An Empirical Assessment of the 2004 EU Merger Policy Reform," CIG Working Papers SP II 2010-16, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  2. John García & Francesc Trillas, 2011. "Control corporativo y riqueza de los accionistas en el sector eléctrico europeo (2000-2007)," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(25), pages 297-319, July-Dece.
  3. Budzinski, Oliver, 2012. "Empirische Ex-Post Evaluation von wettbewerbspolitischen Entscheidungen: Methodische Anmerkungen," Ilmenau Economics Discussion Papers 69, Ilmenau University of Technology, Institute of Economics.
  4. John J. García & Francesc Trillas, 2012. "Regulatory Reform and Corporate Control in European Energy Industries," DOCUMENTOS DE TRABAJO CIEF 010664, UNIVERSIDAD EAFIT.
  5. Warell, Linda, 2007. "A horizontal merger in the iron ore industry: An event study approach," Resources Policy, Elsevier, vol. 32(4), pages 191-204, December.
  6. Budzinski, Oliver, 2012. "Impact evaluation of merger control decisions," Ilmenau Economics Discussion Papers 75, Ilmenau University of Technology, Institute of Economics.
  7. Oliver Budzinski, 2011. "Impact Evaluation of Merger Decisions," Working Papers 112/11, University of Southern Denmark, Department of Environmental and Business Economics.
  8. Kamerbeek, S.P., 2009. "Merger Performance and Efficiencies in Horizontal Merger Policy in the US and the EU," MPRA Paper 18064, University Library of Munich, Germany.
  9. Stiebale, Joel & Haucap, Justus, 2013. "How Mergers A ffect Innovation: Theory and Evidence," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79831, Verein für Socialpolitik / German Economic Association.

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