Do Merges and Acquisitions Create Value for Shareholders?

Abstract

This paper investigates whether M&A create value for the firm and its shareholders. Using data on M&A announcement made by publicly listed firms in the United States in 2003, it conducts a standard event study by calculating the cumulative abnormal return around [-1, 0, +1], where -1 is the one trading day prior to the M&A announcement, 0 is the day of the announcement, and +1 is one trading-day after the announcement. It finds that M&A deals were, on average, value enhancing for firms over the short horizon. It also shows that firm size has a negative and statistically significant relationship with the cumulative abnormal return. Firms with small size are likely to have a positive cumulative abnormal return from M&A deals. In other words, small firms would benefit most on average from M&A deals.

Keywords: Mergers and Acquisitions, Value Creation

JEL Classification: G30, G34