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Takeover Anticipation and Abnormal Returns
Stockholm University, Faculty of Social Sciences, Stockholm Business School, Finance.
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper documents that a part of takeover synergy is incorporated in the target and acquirer stock prices prior to the event window of previous studies, around the takeover anticipation date. This result suggests that those studies might quantify only a partial wealth effect of acquisitions. This paper introduces a new approach, which estimates the parameters of the expected return model from the pre-anticipation period, to control the consequences of early anticipation for the measurement of abnormal returns. Contrary to a benchmark event study, this approach finds that the daily average abnormal returns to the target (acquirer) shareholders are smaller by 3.06 (1.71) basis points in the cash acquisitions, and greater by 4.4 (2.12) basis points in the equity deals. These improvements are economically important, as daily returns of the U.S. treasury notes range from 1.13 to 1.78 basis points in the sample period. Overall, using an anticipation-adjusted event study in this paper sheds light on the magnitude of acquisition returns, and so on some well-documented takeover results.

Keyword [en]
mergers and acquisitions, event study, prediction, abnormal returns, payment method
National Category
Business Administration
Research subject
Business Administration
Identifiers
URN: urn:nbn:se:su:diva-130258OAI: oai:DiVA.org:su-130258DiVA: diva2:927721
Available from: 2016-05-12 Created: 2016-05-12 Last updated: 2016-05-17Bibliographically approved
In thesis
1. Essays on Mergers and Acquisitions and Event Studies
Open this publication in new window or tab >>Essays on Mergers and Acquisitions and Event Studies
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation consists of three studies on the anticipation of mergers and acquisitions (M&As) and its impact on takeover event studies.

 Article I investigates whether the market can anticipate both takeovers and their payment forms prior to their announcement dates. This article also proposes a new time-series approach for detecting the ex-ante deal-anticipation and payment-form anticipation dates. The results indicate that the majority of deals and their payment forms are anticipated much earlier than has been documented in previous takeover studies. Moreover, controlling for the anticipation dates matters for explaining the choice of payment method in M&As.

Article II studies how assuming that M&As are unpredictable during the estimation window affects the measurement of abnormal returns. The results show that a part of takeover synergy is indeed incorporated into the stock prices during the estimation window of previous studies, around the deal-anticipation dates. This article estimates the parameters of the expected return model from the pre-anticipation period to control the consequences of ex-ante anticipation on the estimates of abnormal returns. Using the anticipation-adjusted approach significantly improves the estimation of the event-window abnormal returns, and provides new insights into some well-documented takeover results.

Article III examines how the abnormal returns are affected when a standard event study assumes that the parameters of the expected return model are stable. Using a sample of firm takeovers, the results indicate that the parameters are indeed unstable. This article introduces a time-varying market model to account for the dynamics of merging likelihood when it estimates the abnormal returns. The findings show that the stability assumption causes a standard event study to overestimate significantly the abnormal returns to the target and acquirer shareholders.

Place, publisher, year, edition, pages
Stockholm: Stockholm Business School, Stockholm University, 2016. 21 p.
Keyword
mergers and acquisitions, event study, prediction, payment method, conditional CAPM, time-varying parameters, structural change methodology, variance, covariance
National Category
Business Administration
Research subject
Business Administration
Identifiers
urn:nbn:se:su:diva-130260 (URN)978-91-7649-447-9 (ISBN)
Public defence
2016-06-13, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 10:00 (English)
Opponent
Supervisors
Note

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 1: Manuscript. Paper 2: Manuscript. Paper 3: Manuscript.

Available from: 2016-05-23 Created: 2016-05-13 Last updated: 2016-05-20Bibliographically approved

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