Acquisition Returns: Does Industry Matter?

Abstract

Despite the large number of studies on acquirers’ return from acquisitions, the role of industry specifications in post-completion return of acquisitions remains underexplored. Recent studies provide evidence of differential performance across industries. However, a relationship between acquirer performance and its industry is still indeterminate. This research uses a longer time period and a broader range of industries than previous studies. The sample of this study comprises 3101 acquisitions by firms from the New York Stock Exchange, the American Stock Exchange and Nasdaq. The results of this research provide more comprehensive evidence from all of the industries that have been involved in mergers and acquisition deals during the period 1981 to 2007 so that the returns of different industries can be compared. It illuminates the issue of whether there is a significant difference between long-term abnormal return of acquirers across industries, and which industries achieve better returns. The evidence rejects the equality of mean abnormal returns across industries at significant levels. While a number of industries such as petroleum and natural gas, insurance and machinery, experienced significantly positive abnormal performance, others like business services and medical equipment have demonstrated significantly negative long-term returns. Consistent with prior research findings, the results of this study suggest around zero long-term performance for acquisitions in the banking industry. This is consistent with evidence from extant literature which shows unequal long-term performance across industries.