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Abnormal returns around mergers and acquisitions for US firms

Justice Kyei-Mensah
경제연구소 (Hanyang Economic Research Institute)|2021.05|Journal of Economic Research (JER)|제26권 제1호|pp. 27-62|DOI 10.17256/jer.2021.26.1.002

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키워드

Abnormal returnsMergers and acquisitions (M&As)GJR-GARCH-MBootstrapping simulations
주제분류경제학

초록

We examine the cumulative abnormal returns (CARs) surrounding merger announcements for NYSE, NASDAQ and AMEX-listed firms. We estimate the Fama-French-Carhart four-factor CAPM under both the standard OLS method and the asymmetric GARCH(1,1)-in-mean, hereafter GJR-GARCH-M. The statistical significance of the CARs is determined using the adjusted Boehmer et al. (1991) t-statistics modified by Kolari and Pynnonen (2010). The GJR-GARCH-M method provides stronger support for the view that shareholders of both acquirers and targets gain around merger announcements. To illustrate, at the announcement date, the CAR of 0.233% is insignificant under the OLS for acquirers, whereas, the CAR of 0.386% is significant under the GJR-GARCH-M method. The gain of 0.386% is sizable supporting the neoclassic theory of M&A. Small and low liquidity acquirers and targets exhibit larger CARs than their medium counterparts. Cash and mixed payments are associated with significant CARs but not stock payments.

Abstract

We examine the cumulative abnormal returns (CARs) surrounding merger announcements for NYSE, NASDAQ and AMEX-listed firms. We estimate the Fama-French-Carhart four-factor CAPM under both the standard OLS method and the asymmetric GARCH(1,1)-in-mean, hereafter GJR-GARCH-M. The statistical significance of the CARs is determined using the adjusted Boehmer et al. (1991) t-statistics modified by Kolari and Pynnonen (2010). The GJR-GARCH-M method provides stronger support for the view that shareholders of both acquirers and targets gain around merger announcements. To illustrate, at the announcement date, the CAR of 0.233% is insignificant under the OLS for acquirers, whereas, the CAR of 0.386% is significant under the GJR-GARCH-M method. The gain of 0.386% is sizable supporting the neoclassic theory of M&A. Small and low liquidity acquirers and targets exhibit larger CARs than their medium counterparts. Cash and mixed payments are associated with significant CARs but not stock payments.

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