Influence of merger and acquisition announcements on stock return - An event study
Abstract
This is a study about abnormal return created through financial event by given
some extremely different point of views from previous studies. This study investigates
influence of stock return reaction toward Merger and Acquisition announcements of
target and bidder companies. In addition, the presence of insider leakage information
before the official announcements is also empirically tested. The investigation has been
carried out by following a traditional event study methodology which M&A
announcement is the event. Four event windows include ±2, ±5, ±7 and ±10 are built to
collect data from totally 45 M&A announcements of various companies which are listed
on Ho Chi Minh Stock Exchange in the period Jan 1st, 2011 – Mar 1st, 2015. Those 45
announcements are impliedly divided into four types of target and bidder companies.
They are target-listed-only-firms, bidder-listed-only-firms which have the other partner
do not list on the same stock exchange; target-firms and bidder-firms which are others‟
partners. A one sample t-test model on Cumulative Average Abnormal Return (CAAR)
are separately applied to find the significant return to shareholders and to realize if any
prior returns come from the leakage information before the official announcements.
Many different results have been proved. At first, evidences show the reaction of stock
return to M&A announcements. Moreover, the finding p-values from target-listed-onlyfirms which decrease gradually from event window ±2 to ±10 prove that it is more
significant returns over larger event windows than over shorter windows. In addition,
while stock return from kinds of target firms act orderly with all positive results, returns
from kinds of bidder firms act confusedly with both positive and negative. Thus, this
study suggests that, investing in kinds of target firms is more stable. Another fact learned
from the empirical result is that shareholders of the target firms which do not have their
partner listed on the same stock exchange gain return more regularly during the event
window. Hence, it suggests that when hearing the information of M&A, investor should
invest in target-listed-only-firms rather than the target-firms. The other interesting fact isix
if investors want to invest in any kind of bidder firms they should be calm and wait
because the positively significant abnormal return actually appear in 10 days after the
official announcement. The findings also show that there is different kind of return
reaction among the event windows of 4 types companies but it is almost the same for
partnership circumstances (bidder-firms and target-firms).