Shareholders wealth and mergers and acquisitions (M&As)

• Main Authors: Justice Kyei-Mensah, Chen Su, Nathan Lael Joseph
• Format: Article
• Language: English
• Published: LLC "CPC "Business Perspectives" 2017-10-01
• Series: Investment Management & Financial Innovations
• Subjects: abnormal returns (ARs); GJR-GARCH; mergers and acquisitions (M&As); shareholders wealth
• Online Access: https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/9195/imfi_2017_03_Kyei-Mensah.pdf

We re-examine the abnormal returns (ARs) around merger announcements using a large sample of 8,945 announcements. We estimate the ARs using the Carhart (1997) four-factor model under the standard ordinary least square (OLS) method and the Glosten et al.’s (1993) asymmetric GARCH specification (hereafter, GJR-GARCH). Under the OLS method, acquirers do not generate significant cumulative ARs (CARs) in line with prior work. Our new results, however, show that under the GJR-GARCH estimation, acquirers generate positive and significant cumulative CARs. We attribute the gains to the use of the GJR-GARCH estimation method, as the GJR-GARCH method is more effective in capturing conditional volatility and asymmetry in the excess returns.