Merger and Acquisition Announcements - The Effect on European Equity Prices

Abstract

This paper empirically tests the impact of merger and acquisition announcements on common stock pricesof European developed markets by using an event study methodology. The findings suggest significant positive abnormal returns for the targets occurring mostly on the event date and one day prior, but insignificant slightly negative abnormal returns for the acquirers could appear due to anticipation effects or leakage of private information. Cross-Border M&A announcements create positive significant average cumulative abnormal returns for the targets and higher than those of the National deals. Targets based in the UK enjoy higher positive average cumulative abnormal returns than those based in other European countries. The returns for targets by year are stronger positive in years of financial crises. The average abnormal returns for most industries differ slightly but are in line with the results of the overall sample. The acquirers for all subsamples exhibit very low returns close to zero and sometimes negative with statistical significance. Those findings help investors to form appropriate expected returns and policy makers to detect insider trading prior to M&A announcements.