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Theoretical and Applied Economics
No. 1 / 2024 (638), Spring

Evaluation of the event study in the case of mergers and acquisitions

Dragoș-George BÎLTEANU
Bucharest University of Economic Studies, Romania
University of Geneva, Switzerland

Abstract. The subject under analysis pertains to the research field of semi-strong informational efficiency, which is established when the autocorrelation coefficient of stock prices during the event period being analyzed is zero. This indicates that stock price fluctuations before and after the mergers and acquisitions (M&A) event occur randomly. If the release of new information regarding mergers and acquisitions is followed by abnormal returns before or after the M&A event, then semistrong efficiency is not confirmed.

There is a notable movement in stock prices one day prior to the official announcement of mergers and acquisitions, followed by a significant reverse movement for several subsequent days. This fluctuation in returns, along with market movements, exceeds 11% over a 10-day period. The day of the event is considered to be the day when the Board of Directors' decision regarding the acquisition is made public.

Firstly, we highlighted the purpose of the event study, namely, to identify the „residuals” of returns between actual returns (R_it) and expected returns during the period when M&A information was publicly disseminated. Furthermore, we reviewed elements of the literature that addressed event studies in general, with a focus on the impact of M&A on the capital market in particular. Subsequently, we outlined the research methodology and hypotheses, and the models used to identify return residuals.

For analyzing the impact of M&A on market reactions, we used the market model and the Capital Asset Pricing Model (CAPM). Our empirical study estimates the impact on the stock price of Transilvania Bank resulting from the acquisitions of Volksbank Romania and Bancpost. Finally, we analyzed the impact of the merger between the Bucharest Stock Exchange (BVB) and SIBEX Sibiu. This paper offers a thorough empirical analysis of the economic advantages received by shareholders of acquiring companies after mergers and acquisitions. Our research findings show that, in general, acquiring firms yield positive abnormal returns. This stands in contrast to much of the existing literature, which indicates that, on average, there are losses (although not always statistically significant) associated with merger and acquisition transactions in developed countries.

Keywords: mergers and acquisitions, event study, semi-strong informational efficiency, abnormal returns, Market Model, Capital Asset Pricing Model (CAPM).

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016


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