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Value creation in European M&As

  • José Manuel Campa

    ()

    (IESE Business School)

  • Ignacio Hernando

    ()

    (Banco de España)

Registered author(s):

    This paper looks at the value generated to shareholders by the announcement of mergers and acquisitions involving firms in the European Union over the period 1998-2000. Target firm shareholders receive on average a statistically significant excess return of 9% in a onemonth window centered on the announcement date. Acquirers’ excess returns are null on average. When distinguishing in terms of the geographical and sectoral dimensions of the merger deals, our main finding is that mergers in industries that had been previously under government control or that are still heavily regulated generate lower value than M&A announcements in unregulated industries. This low value creation in regulated industries becomes significantly negative when the merger involved two firms from different countries and was primarily due to the lower positive return that shareholders of the target firm enjoyed upon the announcement of the merger. This evidence is consistent with the existence of obstacles (such as cultural, legal, or transaction barriers) to the successful conclusion of this type of transaction, which decrease the probability that the merger will actually be completed as announced and, therefore, reduce its expected value.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/02/Fic/dt0223e.pdf
    File Function: First version, October 2002
    Download Restriction: no

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0223.

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    Length: 36 pages
    Date of creation: Oct 2002
    Date of revision:
    Handle: RePEc:bde:wpaper:0223
    Contact details of provider: Web page: http://www.bde.es/
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    1. Comment, Robert & Jarrell, Gregg A., 1995. "Corporate focus and stock returns," Journal of Financial Economics, Elsevier, vol. 37(1), pages 67-87, January.
    2. Jörn Kleinert & Henning Klodt, 2002. "Causes and Consequences of Merger Waves," Kiel Working Papers 1092, Kiel Institute for the World Economy.
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    4. Raghavendra Rau, P. & Vermaelen, Theo, 1998. "Glamour, value and the post-acquisition performance of acquiring firms," Journal of Financial Economics, Elsevier, vol. 49(2), pages 223-253, August.
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    7. Mulherin, J. Harold & Boone, Audra L., 2000. "Comparing acquisitions and divestitures," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 117-139, July.
    8. Campa, Jose M. & Kedia, Simi, 2000. "Explaining the diversification discount," IESE Research Papers D/424, IESE Business School.
    9. Jason Karceski & Steven Ongena & David C. Smith, 2000. "The impact of bank consolidation on commercial borrower welfare," International Finance Discussion Papers 679, Board of Governors of the Federal Reserve System (U.S.).
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    17. repec:dgr:kubcen:200087 is not listed on IDEAS
    18. Firth, Michael, 1980. "Takeovers, Shareholder Returns, and the Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 235-60, March.
    19. 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.
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