Shareholder Value Creation in European M&As

36 Pages Posted: 13 Apr 2004

See all articles by José Manuel Campa

José Manuel Campa

University of Navarra - Madrid Campus - IESE Business School; National Bureau of Economic Research (NBER)

Ignacio Hernando

Banco de España

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This paper looks at the value generated to shareholders by the announcement of mergers and acquisitions involving firms in the European Union over the period 1998-2000. Cumulative abnormal shareholder returns due to the announcement of a merger reflect a revision of the expected value resulting from future synergies or wealth redistribution among stakeholders. Target firm shareholders receive on average a statistically significant cumulative abnormal return of 9% in a onemonth window centred on the announcement date. Acquirers' cumulative abnormal returns are null on average. When distinguishing in terms of the geographical and sectoral dimensions of the merger deals, our main finding is that mergers in industries that had previously been under government control or that are still heavily regulated generate lower value than M&A announcements in unregulated industries. This low value creation in regulated industries becomes significantly negative when the merger involves two firms from different countries and is primarily due to the lower positive return that shareholders of the target firm enjoy upon the announcement of the merger. This evidence is consistent with the existence of obstacles (such as cultural, legal, or transaction barriers) to the successful conclusion of this type of transaction, which lessen the probability of the merger actually being completed as announced and, therefore, reduce its expected value.

Keywords: Mergers and acquisitions, Europe, event study

JEL Classification: G34, G38, L44

Suggested Citation

Campa, José Manuel and Hernando, Ignacio, Shareholder Value Creation in European M&As. Available at SSRN:

José Manuel Campa (Contact Author)

University of Navarra - Madrid Campus - IESE Business School ( email )

Camino del Cerro del Aguila 3
Madrid, 28023
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Ignacio Hernando

Banco de España ( email )

Madrid 28014
+34 91 338 5186 (Phone)
+34 91 338 5678 (Fax)

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