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Merger Bids, Uncertainty, Stockholder Returns: Anshuli 19DM036 PGDM Finance
Merger Bids, Uncertainty, Stockholder Returns: Anshuli 19DM036 PGDM Finance
UNCERTAINTY, AND
STOCKHOLDER RETURNS
Anshuli
19DM036
PGDM Finance
Purpose of Study
To examine the entire merger process from 480 trading days before a
merger bid until 240 trading days after a merger bid.
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211 target and 196 bidding firms
- Successful mergers
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Methodology
• Trading days accounted for the study – 480 trading days before merger bid until 240 trading days
after merger bid.
• Two merger events used – Announcement date & Outcome date
• Both unsuccessful & successful merger bids are studied.
• The sample of successful merger consist of 211 target firms & 196 bidding firms.
• The sample of unsuccessful merger bids contains 91 target firms & 89 bidding firms.
• Daily excess returns of the firms are calculated using technique developed by Myron Scholes for
the Centre for Research in Security Prices (CRSP)
• Formula for excess return calculation - XRit = Rit - E(Rit), where the CER is for the period from t =
K until t = L.
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Pre-Press Date Period Pre-press date period from “-480 days” until
“-20 days” before the press date.
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Press date on which information about a merger bid first appears in
Press Date the financial press.
It generates large positive excess returns for the target firms and
Bidding firms generates small but insignificant positive excess returns
at the press day
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Period between the
press date and the Demonstrate how the stock market responds to a merger
outcome date bid in progress.
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Outcome Date The outcome date marks the end of a merger bid.
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Post Outcome Period
Post-outcome period is the period from the
day following the outcome date until 240
days after it.
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Conclusion Stocks whose trading was halted on the press date exhibited much larger
excess returns than other successful target firms.
Entire market reaction to a merger bid does not occur at the time of
announcement.
Excess returns occur throughout the period from the press date to the outcome
date.
The market reverses the initial positive excess returns for both target and
bidding firms in unsuccessful bids
There are no significant excess returns for unsuccessful bidding firms at either
the press or outcome day.
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Thanks!
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