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Contribution Details

Type Bachelor Thesis
Scope Discipline-based scholarship
Title Short-term and long-term value effects of mergers and acquisitions
Organization Unit
  • Stefan Bojinovic
  • Michel Habib
  • Fulvia Fringuellotti
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 29
Date October 2017
Zusammenfassung Numbers of Mergers & Acquisitions (M&As) are rising in the modern corporate world in order to keep up with globalisation, competitors and a rapidly changing environment. There are several positive aspects of Mergers & Acquisitions, such as entering new markets, extending a firm’s customer base, or reducing costs with economies of scope and economies of scale, as well as gaining synergy effects. It seems as if M&As should create benefits for companies and be positively perceived by the market (Runkel (2014)), but there are also several theories denying a positive effect of M&As. Value-destroying theories argue that managers could pursue different objectives than gaining shareholder wealth, like individual interests. Other theories state that there are several determinants of abnormal returns around M&A announcements which can lead to negative effects. This thesis attempts to unite all factors in one research and to give a broad picture of the effects of M&As. The purpose of this thesis is to examine the short-term and long-term effects of M&As on the value of bidding companies. Approach The author of this thesis initially introduces different theories to the reader. The literature review gives an overview of most common value-destroying as well as value-creating theories related to M&A announcements. In a further step, the literature is examined for empirical evidence so far. As there are studies supporting both, value-destroying as well as value-creating theories, this research is objectively approached. The analysis of literature allows for developing different hypotheses. The null hypothesis is that M&A announcements are not associated with significant abnormal returns to acquirers’ firm value. This would indicate that generally no positive nor negative effects have been achieved with M&As. The first alternative hypothesis says that M&A announcements do indeed have an effect on acquirers’ firm value, namely a significant and negative abnormal return. The acceptance of this alternative hypothesis would allude value-destroying theories, such as agency theory, which argues that managers pay less attention to company interests than to personal interests. Another alternative hypothesis is that M&A announcements lead to significantly positive abnormal returns. This would imply that generally positive effects have been achieved with M&As. Such effects could be the achievement of synergetic gains, economies of scope and economies of scales, increase of competitiveness and mitigation of rivalry. This research uses secondary data for the analysis, as the investigation focuses on acquirers’ stock prices. The analysis examines 88 greatest M&A announcements based on the total deal value announced from 1996 to 2016. To have a general global trend in M&A announcement effects, this research does not differentiate between countries, deal specifications or other determinants. For this study, the event study methodology is used. This study allows for testing the effects of M&A announcements both for short-term and long-term event windows. For short-term analysis, cumulative average abnormal returns (CAARs) on acquirers’ stock prices are estimated and tested for the null hypothesis. The returns on acquirers’ stock prices in the long run are estimated through buy-and-hold abnormal returns (BHARs), which are again tested for the null hypothesis. In order to receive unambiguously results, different methods are used to examine the effects. Besides the analysis of the descriptive statistic of the returns, different approaches are used to perform the hypothesis test. Firstly, the significance of the deviation of CAAR from zero is examined based on the t-test (Wu et al. (2016)). In a second step, the events are tested for confounding events and data are examined for outliers. These adjusted data are again tested with the t-test. The last step is a nonparametric test, the Wilcoxon signed-rank test. A nonparametric test can give additional insight to the results (McWilliams and Siegel (1997)). Results and discussion The results show that acquirers are more likely to gain negative abnormal returns around the announcement of M&As. The t-test with full data set reveals significantly negative abnormal returns for all post-event windows tested. Pre-event windows are tested to capture if insider information or rumours affected the stock prices. The findings are not strongly indicative, but there are some hints at this possibility, as one of the two tested event windows yields a significant negative return. Also, 3 out of 4 tested event windows around the event reveal significant negative returns. This shows that in the short-term acquirers are more likely to gain negative results around M&A announcements. The long-term analysis does not provide clear results, as the shortest event window reveals significantly negative returns, whereas the one-year event window reveals insignificant returns. Longer windows show again significant results, but these results have to be taken carefully given the great possibility of other events having impact on them. The second analysis with separated data shows similar results for short-term analysis. The pre-event windows show no significant returns, which indicates that there were no rumours or insider information affecting the stock prices. The windows around the event show similar results, with two of them revealing significantly negative returns, whereas the other two reveal insignificant returns. But again, all the post-event windows show significantly negative abnormal returns, indicating that acquirers are more likely to gain negative returns after M&A announcements. The nonparametric test reveals again similar results, confirming the tendency of acquirers gaining negative abnormal returns around or after the event for short-term as well as long-term event windows. These results confirm the first alternative hypothesis, giving evidence for the value-destroying nature of M&A announcements for acquirers.
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