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Profitability Analysis of Mergers and Acquisitions: An Event Study Approach

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  • Mehroz Nida Dilshad

Abstract

The purpose of this research is to test the efficiency of market with respect to announcements of mergers and acquisitions using an event study methodology. Specifically, this study analyzed the effects of banks mergers and their announcements on the prices of stocks, in Europe. We study 18 deals that involve banks in Merger and Acquisition from year 2001 to 2010 in order to investigate the returns of shareholder of the targets and acquirers. Evidence here supports that significant cumulative abnormal returns were short lived for the acquirers. At the end of the event window, the cumulative abnormal returns were 0. Evidence of excess returns after the merger announcement was also observed along with the leakage of information that resulted in the rise of stock prices few days before the announcement of merger or acquisition. At the same time, the results of cumulative abnormal returns showed that target banks earned abnormal returns on the merger announcement day.

Suggested Citation

  • Mehroz Nida Dilshad, 2013. "Profitability Analysis of Mergers and Acquisitions: An Event Study Approach," Business and Economic Research, Macrothink Institute, vol. 3(1), pages 89-125, June.
    • Handle: RePEc:mth:ber888:v:3:y:2013:i:1:p:89-125
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    References listed on IDEAS

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    1. Lambert, Richard A. & Lanen, William N. & Larcker, David F., 1989. "Executive Stock Option Plans and Corporate Dividend Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 409-425, December.
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    3. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-267, May.
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    More about this item

    Keywords

    Market efficiency; Mergers; Acquisitions; Shareholders; Banks; Information;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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