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Stock Market Reactions To Merger & Acquisition Announcements: UK & US Evidence

There have been many studies observing the effects of mergers and acquisitions on the stock price of target and bidding firms. This paper investigates returns to UK and US firms announcing mergers and acquisitions between 2002 and 2004. The returns to both bidder and target firms are examined. Further to this, variables explaining the returns are investigated. The study employs event study methodology, and uses the market model to observe abnormal returns to firms on the announcement day. As anticipated, the findings suggest that target shareholders in both the UK and US earn significant positive returns. However, the returns to bidders in the UK and US vary. UK acquirers earn zero adjusted returns while US acquirers suffer significantly negative returns on announcement. With regard to the method of payment, US targets receiving pure cash offers experienced the highest returns, followed by mixed deals and pure stock deals; this evidence supports the information content hypothesis. Unexpectedly, in the UK, targets receiving bids compromising of cash and stock (mixed) observed the highest returns. A cross section regression analysis was employed to identify the determinants of abnormal returns on announcement. The findings show that UK targets benefit from higher returns when offered larger premiums. Meanwhile, US targets achieved higher returns when involved in pure cash and hostile bids. Furthermore, acquirers in the UK and US both experience positive wealth gains when involved in pure cash bids, the evidence also suggests that related acquisitions are not value creating.

1.0 Introduction

2.0 Literature Review and Hypothesis Setting
Forms of Acquisitions
Classification of Mergers and Acquisitions
Motives for Mergers & Acquisitions
Failure of M&A’s

3.0 Data Collection and Sample
Data Collection
Sample Characteristics

4.0 Methodology
Efficient Market Hypothesis
Event Study Methodology
Regression Methodology
Limitations

5.0 Results
Targets
Acquirers

6.0 Conclusion

7.0 Appendices

8.0 References

Download Here: Dissertation
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