The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

30 Pages Posted: 29 Feb 2020

See all articles by Juan M. Lozada

Juan M. Lozada

Universidad EAFIT

Lina Cortes

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF)

Daniel Velasquez

Instituto Tecnológico Metropolitano

Date Written: February 19, 2020

Abstract

Mergers and acquisitions (M&As) are mainly a mechanism used in the Latin American banking industry to carry out business consolidation. This paper focuses on the effect of M&A announcements on stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method. We find that acquirers and target banks have a statistically significant CAR, however, the sign is inconclusive. Rivals of acquirers and targets are not affected by M&A announcements. In general, we observe that EIV is negative for acquirers, targets, and rivals. Finally, we estimate a multivariate GARCH model to isolate the effects of co-movements of volatility between the acquirer and the target, and we find that the results remain qualitatively equal.

Keywords: Emerging Markets; GARCH event study; Latin America; Banking industry

JEL Classification: C32; G14; G21; G34

Suggested Citation

Lozada, Juan M. and Cortes, Lina and Velasquez, Daniel, The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry (February 19, 2020). Available at SSRN: https://ssrn.com/abstract=3545599 or http://dx.doi.org/10.2139/ssrn.3545599

Juan M. Lozada

Universidad EAFIT ( email )

Carrera 49 No. 7 South - 50
Medellín
Colombia

Lina Cortes (Contact Author)

Universidad EAFIT - School of Economics and Finance - Center for Research in Economic & Finance (CIEF) ( email )

Carrera 49 No. 7 South - 50
Bogotá
Colombia

Daniel Velasquez

Instituto Tecnológico Metropolitano ( email )

Colombia

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