Abstract
We re-examine the abnormal returns (ARs) around merger announcements using a large sample of 8,945 announcements. We estimate the ARs using the Carhart (1997) four-factor model under the standard ordinary least square (OLS) method and the Glosten et al.’s (1993) asymmetric GARCH specification (hereafter, GJR-GARCH). Under the OLS method, acquirers do not generate significant cumulative ARs (CARs) in line with prior work. Our new results, however, show that under the GJR-GARCH estimation, acquirers generate positive and significant cumulative CARs. We attribute the gains to the use of the GJR-GARCH estimation method, as the GJR-GARCH method is more effective in capturing conditional volatility and asymmetry in the excess returns.
Highlights
There is no doubt that the area of mergers and acquisitions (M&As) has been heavily researched1
The deal value is one million dollars or more and the deal value relative to the market capitalization of acquirer is more than 1%; (iii) the acquirer is publicly quoted nonfinancial U.S firm listed on the NYSE, AMEX, or NASDAQ; (iv) the acquirer has financial and accounting data on the Center for Research in Security Prices (CRSP) and Compustat databases; (v) the target is a U.S public or private nonfinancial firm; and (vi) the acquirer controls less than 50% of shares of the target at the announcement day, but ends up with 100% on completion
None of cumulative ARs (CARs) are significant null hypothesis that the magnitude of the abnormal returns (ARs) are under the ordinary least square (OLS) in line with previous studies (Lang et similar for both estimation methods (p-value ≥ 0.05)
Summary
There is no doubt that the area of mergers and acquisitions (M&As) has been heavily researched. To date, accounting and finance researchers provide definitive answers on the economic gain arising from M&As deals. The finance literature indicates that acquirers’ abnormal returns (ARs) around merger announcements are either zero or negative and significant (Campa & Hernando, 2006; Dutta & Jog, 2009; Stunda, 2014). These results hold fairly consistent, except when targets are unlisted (Faccio et al, 2006; Fuller et al, 2002). The empirical results are mixed in accounting research. The economic question is: Why do acquirers undertake M&As deals that do not generate gains to their shareholders?
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