Determinants of Bidders' Abnormal Returns in Technology Mergers and Acquisitions

Abstract

We study 314 mergers and acquisitions (M&As) of European and American technology firms between 2004 and 2018. Using the standard event study methodology, this paper analyzes the abnormal returns of bidders in the event window around the M&A announcement date to investigate whether or not technology M&As create value. Following the event study, we examine which factors influence the bidders’ abnormal returns. Even though previous literature has examined the determinants of abnormal returns in industry-specific M&A transactions, the technology sector has received less attention. Our findings show that the announcement effect of bidders on average reduce their shareholder value. A possible explanation for the lack of statistically significant positive abnormal returns is the competitiveness of markets for corporate control. Concerning specific determinants, our results show that higher liquidity of the bidder firm on average leads to higher abnormal returns. We also find strong evidence that the size of the transaction and the method of payment influence abnormal returns of bidders. Moreover, we find that higher efficiency of target firms generates higher abnormal returns for bidders. In conclusion, our results indicate that technology firms should aim to acquire small, efficient targets using cash-only as the preferred method of payment.