Influence of FHC acquisition announcements on target firm stock value – Taiwan as a case

Abstract

An innovative financial strategy of the government involves establishing financial holding companies (FHCs) in Taiwan. This investigation considers the stock values of the FHC target firms, and applies the Market Model of Event Study Method to determine whether the stock values of the target firms will be affected by FHC acquisition announcements. The results indicate that the target firms had markedly abnormal average returns on the announcement day (t = 0), before and after the announcement day (t = –1, t = +1) and some trading days during the event period. The target firms exhibited positive 3.46% significantly cumulative abnormal average returns during (–3, +3), but during other event periods ( – 10, +10), (–20, +20) and (–30, +30) the cumulative abnormal average returns were not significant. Furthermore, the target firms displayed 11.98% significant positive cumulative average abnormal returns during (–30, –1) but 8.72% significant negative cumulative abnormal average returns during (+1, +30), and 17.84% significant negative cumulative abnormal average returns from the announcement day to the stock transformation date. The results of this work provide a good reference to help investors make decisions regarding selling, buying or holding FHC stocks.