Creating the Value for Shareholders by (M&A's) Mergers and Acquisitions

Abstract

This study examined the movement of announcement-associated stock prices for 18firms undertaking acquisitions and merging between 2000 and 2006. It found that the merging firms gain modestly positive abnormal returns around the time of the press report of the merger proposals, but larger and statistically significant returns over longer event periods. The evidence suggests that, on average, mergers and acquisitions are favored by the market, thus increasing shareholder wealth.This is consistent with most previous studies. Lookingat the motives behind M&As, it was found that most of the M&As were initiated to expand the market.Other motives included diversification, technology acquisition, and vertical integration. Our empirical study found that M&As for technology .acquiring purposes were associated with the highest abnormal returns, while vertical M&As were least favored by the market, ending up destroying shareholder wealth. M&As provide firms with a faster and more cost efficient way of acquiring highly advanced technology that would otherwise required a longer length of time and moreexpenditures to develop in-house.However, care must be taken in evaluating the effectiveness of mergers and acquisitions in improving a firm’s efficiency.