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 / Editura Economica, 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 / Editura Economica, vol. 9(9(526)), pages 69-78, September.
    3. 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.
    4. repec:cmj:journl:y:2013:i:27:hromeias is not listed on IDEAS
    5. Tomi Laamanen, 2007. "On the role of acquisition premium in acquisition research," Strategic Management Journal, Wiley Blackwell, vol. 28(13), pages 1359-1369, December.
    6. 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.
    7. Brown, Stephen J. & Weinstein, Mark I., 1985. "Derived factors in event studies," Journal of Financial Economics, Elsevier, vol. 14(3), pages 491-495, September.
    8. 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.
    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. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Paugam, Luc, 2011. "Valorisation et reporting du goodwill : enjeux théoriques et empiriques," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/8007 edited by Casta, Jean-François.
    8. Mark Aleksanyan & Khondkar Karim, 2013. "Searching for value relevance of book value and earnings: a case of premium versus discount firms," Review of Quantitative Finance and Accounting, Springer, vol. 41(3), pages 489-511, October.
    9. Chen-Lung Chin & Picheng Lee & Gary Kleinman & Pei-Yu Chen, 2006. "IPO anomalies and innovation capital," Review of Quantitative Finance and Accounting, Springer, vol. 27(1), pages 67-91, August.
    10. Peek, E., 2011. "The Value of Accounting," ERIM Inaugural Address Series Research in Management EIA-2011-048-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
    11. Sascha Raithel & Manfred Schwaiger, 2015. "The effects of corporate reputation perceptions of the general public on shareholder value," Strategic Management Journal, Wiley Blackwell, vol. 36(6), pages 945-956, June.
    12. Efstathios G. Parcharidis & Nikos C. Varsakelis, 2010. "R&D and Tobin's q in an emerging financial market: the case of the Athens Stock Exchange," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(5), pages 353-361.
    13. Sangil Kim & Jungmin Yoo, 2017. "Does R&D Expenditure with Heavy Related Party Transactions Harm Firm Value?," Sustainability, MDPI, vol. 9(7), pages 1-15, July.
    14. Stefan Henningsson & Christian Øhrgaard, 2016. "IT Consultants in Acquisition IT Integration," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 58(3), pages 193-212, May.
    15. Claudia Arena & Simona Catuogno & Nicola Moscariello, 2021. "The unusual debate on non-GAAP reporting in the current standard practice. The lens of corporate governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(3), pages 655-684, September.
    16. Dinh, Tami & Schultze, Wolfgang, 2022. "Accounting for R&D on the income statement? Evidence on non-discretionary vs. discretionary R&D capitalization under IFRS in Germany," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    17. Atoche, Teresa duarte & Pérez lópez, José ángel & Camúñez ruiz, Jose antonio, 2012. "La relevancia de los gastos de I+D. Estudio empírico en el sector del automóvil," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(2), pages 257-286.
    18. Dan Givoly & Yifan Li & Ben Lourie & Alexander Nekrasov, 2019. "Key performance indicators as supplements to earnings: Incremental informativeness, demand factors, measurement issues, and properties of their forecasts," Review of Accounting Studies, Springer, vol. 24(4), pages 1147-1183, December.
    19. Qin Wang & Hsiao-Fen Yang, 2015. "Earnings announcements, trading volume, and price discovery: evidence from dual class firms," Review of Quantitative Finance and Accounting, Springer, vol. 44(4), pages 669-700, May.
    20. Yuri Biondi & Simone Righi, 2013. "What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary," Papers 1312.7460, arXiv.org.

    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: Mircea 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.