The Economic Impacts of M&A Announcements of Non-Software Acquiring firms & Software Target firms : An Event Study Approach

• Main Author: Lam, Vincent
• Format: Others
• Language: English
• Published: Blekinge Tekniska Högskola, Institutionen för industriell ekonomi 2019
• Subjects: Economic Impact; Event Study; Market Efficiency; M&A Announcement; Prospect Theory; Economics and Business; Ekonomi och näringsliv
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:bth-18293

Background: Mergers and acquisitions (M&A) are two types of corporate takeover strategy, that is widely used for strengthening and maintaining a firm competitive advantage in both domestic and global markets. Where the common motives behind M&A, is to achieve business expansion through synergy, or to acquire an existing external technology/product outside of a firm's own operational territory. As the world has entered an era of information and globalization, where innovation seems to prosper and different industry markets have become ever more integrated on a global scale, not least in the software industry. Hence, more firms have resorted to M&A in order to survive in a modern competitive market. For example, to capture more market shares, boost productivity, cut development costs, improve investment returns, etc. Nevertheless, the integration process of M&A carries lots of risks, where there is lots of different factors that needs to be considered and discussed before adopting M&A strategies. Such as, what industry are the involving firm operating in, which country are the involving firm located in, and what economic impacts can be triggered by M&A announcements. However, there are currently lack of literatures investigating the economic impacts of M&A announcements across different industries. That is, depending on if the firms are operating within or outside of the same industry, the economic impacts of the M&A announcement might differ. Objectives: The objective of this thesis is to analyze the market reactions generated from M&A announcements, and determine if the economic impacts will be greater if a software target firm is merged/acquired by a software or non-software acquiring firm. Methods: A quantitative statistical event study has been used as the main methodology in this thesis. Which is a standard method to analyze market reaction, that is in this case represented by financial stock market data. Following the event study, a multiple regression analysis was conducted in order to explain the event study, by examine the economic impact on the abnormal return derived from M&A announcements. Results: The result from the event study disclosed that target firms tends to experience more positive abnormal returns, while acquiring firms will experience negative abnormal returns during M&A announcements. The results of the multiple regression analysis, revealed various significant variables that has high explanatory power to the abnormal return. Conclusions: Based on the empirical results, the greatest economic impact could be identified during an M&A announcement that involves a cooperative partnerships deals between software target firms and non-software acquiring firms. Furthermore, acquiring firms tends to offer a higher premium to target firms during M&A transactions. This in turn indicates that acquiring firms will statistically receive less abnormal returns compared to target firms. Delimitations: Due to the wide-ranging scope of an event study that has many diverse adoptions areas to explore, the author decided to make some demarcations in this thesis. In particular, this thesis will be focusing on analyzing stock price movements prior and during M&A announcements. In addition, certain factors/variables that can potentially generate a significant economic impact during M&A announcements will be investigated. Hence, other aspects that are related or may affect M&A transactions itself, will scarcely be discussed or even excluded from this study.