Empirical Examination of Wealth Effects of Mergers and Acquisitions: The U.S. Economy in Perspective

Abstract:     
The last fifth merger wave in the U.S. commenced in 1992 due to deregulation and globalization trends. Until 2003, the merger activity in the U.S. market exceeded $ 5 trillion, while the year of 2005 demonstrates particular interest taking into account the companies that engaged in business consolidations. The main objective of the present event study is to assess the wealth effects arising to acquiring and acquired companies’ shareholders during 2005 in the U.S. stock market. Indeed, the economic consequences to the former are insignificant considering the very low abnormal returns that either do not show statistical significance or are negative. On the contrary, target companies gain substantial abnormal returns above 10% at the announcement day. In fact, the pattern of returns is in accordance with previous literature and despite the fundamental reasons that drive companies to mergers and acquisitions, the empirical findings remain similar diachronically.

Keywords: Mergers, Acquisitions, Abnormal returns, Event study, U.S. stock market

JEL Classification: C52, D31, F36, G34, O51

Accepted Paper Series