Shareholders wealth and mergers and acquisitions (M&As)


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We re-examine the abnormal returns (ARs) around merger announcements using a large sample of 8,945 announcements. We estimate the ARs using the Carhart (1997) four-factor model under the standard ordinary least square (OLS) method and the Glosten et al.’s (1993) asymmetric GARCH specification (hereafter, GJR-GARCH). Under the OLS method, acquirers do not generate significant cumulative ARs (CARs) in line with prior work. Our new results, however, show that under the GJR-GARCH estimation, acquirers generate positive and significant cumulative CARs. We attribute the gains to the use of the GJR-GARCH estimation method, as the GJR-GARCH method is more effective in capturing conditional volatility and asymmetry in the excess returns.

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    • Table 1. Descriptive statistics of M&As announced over the period 1991 to 2013
    • Table 2. Average AR measures for acquirers and targets around merger announcements using the four-factor CAPM under the OLS method and the GJR-GARCH method
    • Table 3. Bootstrapping simulations of AR measures for acquirers and targets around merger announcements
    • Table 4. Average ARs measures around announcements for acquirers by payment method
    • Table 5. Average AR measures around announcements for targets by payment method