Over-Interpretation of Short-Window Event Study Findings in Management Research: An Empirical Illustration

35 Pages Posted: 2 Aug 2006

See all articles by Derek Oler

Derek Oler

Texas Tech University - Rawls College of Business

Jeffrey S. Harrison

University of Richmond - E. Claiborne Robins School of Business

Mathew R. Allen

affiliation not provided to SSRN

Date Written: May 8, 2007

Abstract

Event studies continue to be popular in the management literature. Most management researchers use event studies with a short window, and assume that the market's initial reaction reflects the economic impact of the event in an unbiased manner. This assumption is based on the efficient markets hypothesis (EMH): that security prices at any time fully reflect available information. This assumption likely holds in many settings, but we argue that when the information revealed to the market is complex or otherwise difficult to interpret, the initial market response may be biased or incomplete. In these settings, results from short-window event studies may not completely capture the economic impact of the event. We briefly review prior work on this issue, drawing from finance and accounting as well as from management research, and provide an example to support our argument using a large sample of horizontal acquisitions.

Keywords: Event Studies, Mergers, Acquisitions, Market Efficiency

JEL Classification: G12, G14, G15, G35, M41

Suggested Citation

Oler, Derek and Harrison, Jeffrey S. and Allen, Mathew R., Over-Interpretation of Short-Window Event Study Findings in Management Research: An Empirical Illustration (May 8, 2007). Available at SSRN: https://ssrn.com/abstract=665742 or http://dx.doi.org/10.2139/ssrn.665742

Derek Oler (Contact Author)

Texas Tech University - Rawls College of Business ( email )

P.O. Box 42101
Lubbock, TX 79409
United States
806-834-2354 (Phone)
806-742-3182 (Fax)

Jeffrey S. Harrison

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Mathew R. Allen

affiliation not provided to SSRN

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