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The impact of M&A announcements on stock returns in the European Union

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  • Kellner, Tobias

Abstract

Mergers and acquisitions have profound implications for both target and acquiring companies, which are mainly reflected in the stock price. This article therefore investigates short-term stock price reactions to M&A announcements of targets and acquirers for the second largest M&A market in the world, the European Union. The comprehensive analysis distinguishes between several transaction forms and nations in order to provide a broad and detailed insight into the European M&A market for the period from 2010 to 2021. The results show a strong positive stock price increase of the targets, but little reaction of the acquirers. In addition, target companies exhibit significant positive pre- and post-announcement returns. The highest stock price reactions occur in the case of mergers, whereas they are lowest in the case of partial acquisitions. The regression results suggest little evidence for effects of the location or industry relatedness. UK targets show significantly higher returns than continental firms. No empirical evidence was found for the overpayment hypothesis stating that a negative quadratic relationship exists between the premium and the acquirer’s abnormal return. Moreover, the implications of the results with regard to the efficient market hypothesis are mixed.

Suggested Citation

  • Kellner, Tobias, 2024. "The impact of M&A announcements on stock returns in the European Union," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 843-862.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:843-862
    DOI: 10.1016/j.iref.2023.10.034
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    More about this item

    Keywords

    Mergers and acquisitions; Europe; Event study; Stock returns; Announcement; Market efficiency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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