What are the Causes and Effects of M&As? The UK Evidence

27 Pages Posted: 19 Jun 2015

See all articles by Jie (Michael) Guo

Jie (Michael) Guo

Durham Business School

Dimitris Petmezas

University of Surrey - Surrey Business School

Date Written: June 17, 2015

Abstract

This paper examines the link between the causes and effects of mergers and acquisitions. By using a sample of UK acquisitions, which have the distinct characteristics of limited use of stock as means of payment and dominance of private acquisitions, the evidence shows that, on average, there is a substantial price run-up for acquirers prior to an acquisition announcement followed by a significant drop of bidder’s price in the post-event period. This indicates, to an extent, that corporate acquisitions are the effect of good performance rather than the cause. However, the results also reflect that a relatively better acquisition strategy for a firm to create value is by making many small acquisitions rather than a small number of large acquisitions, implying that acquisitions also drive performance. Overall, the evidence found is mixed and suggests that in the UK market, acquisition returns cannot be solely based on the market driven explanation.

Keywords: mergers & acquisitions; price run-up; method of payment; frequent bidders; long-term wealth effects

JEL Classification: G14, G34

Suggested Citation

Guo, Jie Michael and Petmezas, Dimitris, What are the Causes and Effects of M&As? The UK Evidence (June 17, 2015). Multinational Finance Journal, Vol. 16, No. 1/2, p. 21-47, 2012. Available at SSRN: https://ssrn.com/abstract=2619786

Jie Michael Guo (Contact Author)

Durham Business School ( email )

Old Elvet
Mill Hill Lane
Durham, Durham DH1 3HP
United Kingdom

Dimitris Petmezas

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

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