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Effect of pre-crisis capital on stock abnormal return at acquisition announcements. The case of the Western European banking sector during the 2008 crisis.

Temming, M (2014) Effect of pre-crisis capital on stock abnormal return at acquisition announcements. The case of the Western European banking sector during the 2008 crisis.

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Abstract:In order to assess the impact of M&A announcements on the shareholder value, I perform an event study to analyze if the stock returns of acquiring banks involved in M&A’s have undergone an abnormal trend around the announcement date. The effect of pre-crisis capital on abnormal returns around announcement is measured by an ordinary least squares (OLS) regression model. To identify M&A-transactions of European banks I will rely on the following data sources: Thomson One Banker’s Mergers and Acquisitions Database, and Datastream in order to acquire stock returns around the event dates. Data from pre-crisis capital and other bank-characteristic variables are retrieved from Compustat-Global. The final sample includes a total of 88 announced M&A deals in the EU-17 countries plus Norway and Switzerland during a period of banking crisis between October 2008 and December 2012. This paper provides evidence that the abnormal return for acquiring banks around the announcement of an M&A is different than measurements in a non-crisis period. A significant positive abnormal return was found in the period of a month after the announcement. I argue that this is due to opaqueness of target assets, and an uncertain sentiment during the crisis which delays the due diligence process of the merger. In this event window and various others, pre-crisis capital was found to have a positive and significant association to abnormal return of the acquiring bank.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/64742
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