IDEAS home Printed from https://ideas.repec.org/a/agr/journl/v1(638)y2024i1(638)p295-312.html
   My bibliography  Save this article

Evaluation of the event study in the case of mergers and acquisitions

Author

Listed:
  • Dragoș-George BÎLTEANU

    (Bucharest University of Economic Studies, Romania)

  • Irina STANCU

    (University of Geneva, Switzerland)

Abstract

The subject under analysis pertains to the research field of semi-strong informational efficiency, which is established when the autocorrelation coefficient of stock prices during the event period being analyzed is zero. This indicates that stock price fluctuations before and after the mergers and acquisitions (M&A) event occur randomly. If the release of new information regarding mergers and acquisitions is followed by abnormal returns before or after the M&A event, then semistrong efficiency is not confirmed. There is a notable movement in stock prices one day prior to the official announcement of mergers and acquisitions, followed by a significant reverse movement for several subsequent days. This fluctuation in returns, along with market movements, exceeds 11% over a 10-day period. The day of the event is considered to be the day when the Board of Directors' decision regarding the acquisition is made public. Firstly, we highlighted the purpose of the event study, namely, to identify the „residuals” of returns between actual returns (R_it) and expected returns during the period when M&A information was publicly disseminated. Furthermore, we reviewed elements of the literature that addressed event studies in general, with a focus on the impact of M&A on the capital market in particular. Subsequently, we outlined the research methodology and hypotheses, and the models used to identify return residuals. For analyzing the impact of M&A on market reactions, we used the market model and the Capital Asset Pricing Model (CAPM). Our empirical study estimates the impact on the stock price of Transilvania Bank resulting from the acquisitions of Volksbank Romania and Bancpost. Finally, we analyzed the impact of the merger between the Bucharest Stock Exchange (BVB) and SIBEX Sibiu. This paper offers a thorough empirical analysis of the economic advantages received by shareholders of acquiring companies after mergers and acquisitions. Our research findings show that, in general, acquiring firms yield positive abnormal returns. This stands in contrast to much of the existing literature, which indicates that, on average, there are losses (although not always statistically significant) associated with merger and acquisition transactions in developed countries.

Suggested Citation

  • Dragoș-George BÎLTEANU & Irina STANCU, 2024. "Evaluation of the event study in the case of mergers and acquisitions," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(638), S), pages 295-312, Spring.
    • Handle: RePEc:agr:journl:v:1(638):y:2024:i:1(638):p:295-312
    as

    Download full text from publisher

    File URL: http://store.ectap.ro/articole/1737.pdf
    Download Restriction: no
    File URL: http://www.ectap.ro/articol.php?id=1737&rid=154
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hitt, Michael A. & King, David & Krishnan, Hema & Makri, Marianna & Schijven, Mario & Shimizu, Katsuhiko & Zhu, Hong, 2009. "Mergers and acquisitions: Overcoming pitfalls, building synergy, and creating value," Business Horizons, Elsevier, vol. 52(6), pages 523-529, November.
    2. Cristian Ianca, 2008. "Tax Implication of Structuring and Financing Mergers and Acquisitions," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 9(9(526)), pages 69-78, September.
    3. Ali, Ashiq & Klasa, Sandy & Zhen Li, Oliver, 2008. "Institutional stakeholdings and better-informed traders at earnings announcements," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 47-61, September.
    4. Lev, B & Zarowin, P, 1999. "The boundaries of financial reporting and how to extend them," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 353-385.
    5. Taher Hamza & Faten Lakhal, 2010. "The determinants of earnings management by the acquirer: The case of french corporate takeovers," Working Papers 2010-3, Laboratoire Orléanais de Gestion - université d'Orléans.
    6. repec:cmj:journl:y:2013:i:27:hromeias is not listed on IDEAS
    7. Tomi Laamanen, 2007. "On the role of acquisition premium in acquisition research," Strategic Management Journal, Wiley Blackwell, vol. 28(13), pages 1359-1369, December.
    8. Brown, Stephen J. & Weinstein, Mark I., 1985. "Derived factors in event studies," Journal of Financial Economics, Elsevier, vol. 14(3), pages 491-495, September.
    9. Anca-Simona HROMEI, 2013. "Reasons For Mergers And Their Impact On Companies," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 1, pages 82-88, June.
    10. Marina UHER & Cristina Mihaela NAGY & Bogdan COTLET & Dumitru COTLET, 2012. "Merger of commercial companiesin the conditions of the financial crisis," Anale. Seria Stiinte Economice. Timisoara, Faculty of Economics, Tibiscus University in Timisoara, vol. 0, pages 416-419, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernando, Guy D. & Schneible, Richard A. & Tripathy, Arindam, 2016. "Firm strategy and market reaction to earnings," Advances in accounting, Elsevier, vol. 33(C), pages 20-34.
    2. Ivanov, Alexey, 2013. "Генезис Синергетического Подхода В Исследованиях Слияний И Поглощений: Развенчание Главного Мифа О Синергии [Genesis of synergetic approach in researches of M&A: dethronement of the main myth about," MPRA Paper 50307, University Library of Munich, Germany.
    3. Inès Ben Cheikh & Hédi Noubbigh, 2019. "The Effect of Intellectual Capital Drivers on Performance and Value Creation: the Case of Tunisian Non-financial Listed Companies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(1), pages 147-167, March.
    4. Nicoleta Maria Ienciu & Ionel-Alin Ienciu, 2012. "Determinants of intellectual capital reporting: evidence from the Romanian stock market," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(43), pages 147-164, March.
    5. Yassin Denis Bouzzine & Rainer Lueg, 2021. "The Shareholder Value Effect of System Overloads: An Analysis of Investor Responses to the 2003 Blackout in the US," International Journal of Energy Economics and Policy, Econjournals, vol. 11(6), pages 538-543.
    6. Khalifa, Mariem & Trabelsi, Samir & Matoussi, Hamadi, 2022. "Leverage, R&D expenditures, and accounting conservatism: Evidence from technology firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 285-304.
    7. Paul Van Hulzen & Laura Alfonso & Georgios Georgakopoulos & Ioannis Sotiropoulos, 2011. "Amortisation Versus Impairment of Goodwill and Accounting Quality," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 4(3), pages 93-118, December.
    8. Anna Maria Biscotti & Eugenio D’Amico, 2019. "Does Equity Market Differently Perceive IC Management and Disclosure Behaviours?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 10(2), pages 756-775, June.
    9. Ghribi Rihab & Anis Jarboui, 2016. "Impact of accounting and financial manipulations around mergers and acquisitions on shareholders' perception," Post-Print hal-01371223, HAL.
    10. Raf Orens & Walter Aerts & Denis Cormier, 2010. "Web‐Based Non‐Financial Disclosure and Cost of Finance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9‐10), pages 1057-1093, November.
    11. Bradley, Wendy A. & Kolev, Julian, 2023. "How does digital piracy affect innovation? Evidence from software firms," Research Policy, Elsevier, vol. 52(3).
    12. Lam, Kevin C.K. & Sami, Heibatollah & Zhou, Haiyan, 2013. "Changes in the value relevance of accounting information over time: Evidence from the emerging market of China," Journal of Contemporary Accounting and Economics, Elsevier, vol. 9(2), pages 123-135.
    13. Qu, Xiaohui & Zhang, Guohua, 2015. "Value-relevance of Earnings and Book Value Over the Institutional Transition in China: The Suitability of Fair Value Accounting in This Emerging Market," The International Journal of Accounting, Elsevier, vol. 50(2), pages 195-223.
    14. Abeysekera, Indra, 2008. "Motivations behind human capital disclosure in annual reports," Accounting forum, Elsevier, vol. 32(1), pages 16-29.
    15. Elizabeth Demers & Clara Vega, 2008. "Soft information in earnings announcements: news or noise?," International Finance Discussion Papers 951, Board of Governors of the Federal Reserve System (U.S.).
    16. Waleed Khalid & Kashif Ur Rehman & Muhammad Kashif, 2019. "The Impact of Merger and Acquisition Firms on Stock Market Bubble," Global Regional Review, Humanity Only, vol. 4(1), pages 335-342, March.
    17. Pagach, Donald P. & Warr, Richard S., 2020. "Analysts versus time-series forecasts of quarterly earnings: A maintained hypothesis revisited," Advances in accounting, Elsevier, vol. 51(C).
    18. Biondi Yuri, 2011. "The Pure Logic of Accounting: A Critique of the Fair Value Revolution," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(1), pages 1-49, January.
    19. Leandro Cañibano & Manuel García-Ayuso & M. Sánchez, 2000. "Shortcomings in the Measurement of Innovation: Implications for Accounting Standard Setting," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 4(4), pages 319-342, December.
    20. Lorena Mitrione & George Tanewski & Jacqueline Birt, 2014. "The relevance to firm valuation of research and development expenditure in the Australian health-care industry," Australian Journal of Management, Australian School of Business, vol. 39(3), pages 425-452, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:agr:journl:v:1(638):y:2024:i:1(638):p:295-312. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marin Dinu (email available below). General contact details of provider: https://edirc.repec.org/data/agerrea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.