Essays on Mergers and Acquisitions and Event Studies
Abstract: This dissertation consists of three studies on the anticipation of mergers and acquisitions (M&As) and its impact on takeover event studies. Article I investigates whether the market can anticipate both takeovers and their payment forms prior to their announcement dates. This article also proposes a new time-series approach for detecting the ex-ante deal-anticipation and payment-form anticipation dates. The results indicate that the majority of deals and their payment forms are anticipated much earlier than has been documented in previous takeover studies. Moreover, controlling for the anticipation dates matters for explaining the choice of payment method in M&As.Article II studies how assuming that M&As are unpredictable during the estimation window affects the measurement of abnormal returns. The results show that a part of takeover synergy is indeed incorporated into the stock prices during the estimation window of previous studies, around the deal-anticipation dates. This article estimates the parameters of the expected return model from the pre-anticipation period to control the consequences of ex-ante anticipation on the estimates of abnormal returns. Using the anticipation-adjusted approach significantly improves the estimation of the event-window abnormal returns, and provides new insights into some well-documented takeover results.Article III examines how the abnormal returns are affected when a standard event study assumes that the parameters of the expected return model are stable. Using a sample of firm takeovers, the results indicate that the parameters are indeed unstable. This article introduces a time-varying market model to account for the dynamics of merging likelihood when it estimates the abnormal returns. The findings show that the stability assumption causes a standard event study to overestimate significantly the abnormal returns to the target and acquirer shareholders.
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