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Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data

WZB Markets and Politics Working Paper No. SP II 2006-19

16 Pages Posted: 11 Oct 2006 Last revised: 10 Apr 2008

Tomaso Duso

German Institute for Economic Research (DIW Berlin); Duesseldorf Institute for Competition Economics (DICE)

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: October 2, 2007

Abstract

This paper presents empirical evidence about the ability of event studies to capture future mergers' profitability measured by accounting data. We use a sample of large horizontal concentrations during the period 1990-2002 involving 459 firms either as merging firms or competitors, and contrast a measure of the mergers' profitability based on event studies with one based on balance sheet profit data. We show that using a long window around the announcement date (25 or 50 days before the event) increases the ability of capturing the ex-post merger effect: the pair wise correlation coefficient is positive and highly significant.

Keywords: Mergers, Merger Control, Event Studies, Ex-post Evaluation

JEL Classification: L4, K21, G34

Suggested Citation

Duso, Tomaso and Gugler, Klaus Peter and Yurtoglu, B. Burcin, Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data (October 2, 2007). WZB Markets and Politics Working Paper No. SP II 2006-19. Available at SSRN: https://ssrn.com/abstract=931388 or http://dx.doi.org/10.2139/ssrn.931388

Tomaso Duso (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49 211- 81 10235 (Phone)
+49 211- 81 15499 (Fax)

HOME PAGE: http://sites.google.com/site/tomasoduso/home

Klaus Gugler

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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