Evaluating the Instantaneous and Medium-Run Impact of Mergers and Acquisitions on Firm Values

Abstract

This paper contributes to the literature investigating the impact of mergers and acquisitions (M&A) activity on firm value. To do so, we exploit a large sample of 65,521 M&A deals globally from the Communications, Technology, Energy and Utilities sectors in the years of 2000 to 2010. We focus on an enterprise value multiple, the ratio of EV/EBITDA, as a measure of firm value. Using the difference-in-differences (DID) strategy (with and without propensity score matching), we find significant evidence of negative medium-run M&A effects and positive instantaneous M&A impact on firm value potentially because EV moves faster relative to a slow moving EBITDA.

Keywords: EV/EBITDA, treatment effect, DID estimation, propensity score matchings

JEL Classification: G34, C31, C33