finance Dissertation

Abstract

The aim of this event study was to analyse the impact that the M&A announcement has on the share price of target companies. To fulfil this aim, two research objectives were addressed in this study.

The first objective was to conduct the event study to assess the impact of M&A announcement on share price of target companies around the event window.Positive CAAR pre-announcement and significant positive CAAR at the announcement is noticed. The AAR at the announcement is 11.9%, which is unsurprising, as the market reacts to the M&A announcement causing the increase in price of target firms.The post-event (+2 to +5) CAAR is -0.8% indicating the reversion following the overreaction on the good news. Based on the results, the null hypothesis is rejected and alternative hypothesis H1 accepted that there is a significant abnormal return (positive or negative) earned by the target company around the M&A announcement. The t-statistic confirms that findings are statistically significant at 5% significance level.

The second objective was to ascertain whether event study helps to confirm a potential leakage of information prior to the M&A announcement. The pre-event CAAR for event window (-5, -1) is positive at 6.6%, confirming the excess return as potentially attributed to information leakage. The pre-event CAAR remains positive when event window is extended to 40 days before the announcement (7.5%). The findings are supported by Adnan and Hossain (2016) and Chi et al. (2011), who concluded on the significant and positive abnormal return two months before and around the time of M&A announcement, potentially attributed to information leakage.