Predictability of post-acquisition performance – the case of M&A announcement returns

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Volume Title

School of Business | Master's thesis

Authors

Date

2024

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

63+7

Series

Abstract

This thesis analyses the predictive power of M&A announcement returns. We test if the sign and the level of M&A post-acquisition performance can be predicted by the acquirer (or combined entity) announcement returns. The main objective of this study is to test the relevance of using a commonly accepted measure, M&A announcement returns, as a proxy for M&A value creation and to discover any market inefficiencies in pricing acquisition announcements. Furthermore, we aim to fill the gaps in the scarce and rather inconclusive set of prior literature on the topic. We examine two samples of European M&A deals – covering listed (263 deals) and non- listed (1,906 deals) target companies – carried out by publicly listed acquiring companies between 2001 and 2021. Our results provide indicative evidence of a positive relation between announcement returns and post-acquisition stock performance, meaning that higher (lower) announcement returns are associated with better (worse) long-term outcome. However, we find significant results only within specific samples and using specific short-term return variables. Hence, we fail to find conclusive evidence of the market’s initial reaction to an M&A announcement being able to systematically predict whether the acquirer stock will under or overperform in the longer term.

Description

Thesis advisor

Nyberg, Peter

Keywords

mergers and acquisitions, announcement returns, buy-and-hold abnormal returns, stock market predictability

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202405193442

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[gradu] Kauppakorkeakoulu / BIZ