Evidence from mergers and acquisitions in the the European stock market
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School of Business |
Bachelor's thesis
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Date
2019
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Rahoitus
Language
en
Pages
26
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Abstract
In a sample of acquisitions within 17 developed European countries over the period 2002-2018, I examine the reference price effect on the acquisition performance that is, a negative relationship between the acquirer reference price ratio and acquirer announcement-period returns. I find only weak evidence supporting the hypothesis that when the acquirer’s pre-announcement stock price is close to its 52-week peak value, it experiences lower stock returns around the merger announcement. Further, contradictory to the previous studies, the effect is not significantly strong among private acquisitions, where there is more uncertainty and the investors have less knowledge about the transaction. All in all, contrary to the U.S.-based study by Ma et al. (2019), the evidence does not strongly conform neither to the hypothesis of investors being irrational and anchoring to the acquirers’ 52-week peak value when evaluating the acquirer stock value at the time of merger announcement nor to the hypothesis of investors’ perceived valuation as a singular explanation behind the reference price effect. The differing results may be explained with differences in ownership structures and deal characteristics between the European and U.S. companies for which further research could be considered.Description
Thesis advisor
Ungeheuer, MichaelKeywords
acquisition performance, 52-week high, reference price, anchoring mechanism