Merger imbalance and returns in international equity markets

Abstract

ABSTRACTAt the global level, the mispricing theory of mergers by Shleifer and Vishny (2003) may imply that a significant number of targets acquired in a given country is a sign of market-wide undervaluation whereas intense acquisition activity indicates overvaluation. The present study develops a measure of merger imbalance that compares the quantity of targets and acquirers in a local market and tests significance of this variable for country-level asset pricing. The results prove that countries with a high merger imbalance significantly outperform countries with a low merger imbalance. The research is based on data from 46 countries for the years 1999–2015. The outcomes are robust to many considerations, and the findings support the theory of stock market-driven acquisitions.