scholarly journals Event study methodology in M&A research

2021 ◽  
Vol 26 (1) ◽  
pp. 4-25
Author(s):  
Veronika S. VINOGRADOVA
Keyword(s):  
Mergers And Acquisitions ◽  
Stock Prices ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Financial Statement ◽  
Event Analysis ◽  
Analysis Method ◽  
Basic Principles ◽  
Study Methodology ◽  
Modern Work

Subject. The article presents the basic principles of the event research methodology, which is one of the most popular empirical tools in corporate finance, and mergers and acquisitions. Objectives. The article introduces the main methodologies for calculating expected and abnormal returns, the main approaches for testing abnormal returns and measuring the statistical significance of the results, and it also notes the advantages and limitations of the methodology. Methods. Based on a content analysis of the top classical works in event analysis, the main algorithm and research approaches of the method are presented. The basic concept has been expanded taking into account the results of modern work aimed at improving the methodology. The applicability of the method and its relevance were verified based on the analysis of spotlight publications for 2015–2020. Results. The article provides a review of the latest developments in M&A research. It highlights the main modern trends in the application of the event analysis method. The methodology is shown to be easy to use, with market data used for analysis available in major financial databases. This allows for empirical research with a large sample of securities. In addition, stock prices reflect the direct expectations of investors and best reflect the value created by the event when compared to financial statement analyses that are often misstated. Conclusions and Relevance. It is concluded that the event analysis method remains the key methodology in the field of mergers and acquisitions and is actively used by researchers. Improved econometric approaches allow for increased statistical significance and more accurate results.

scholarly journals Event study methodology in M&A research

2021 ◽  
Vol 26 (1) ◽  
pp. 4-25
Author(s):  
Veronika S. VINOGRADOVA
Keyword(s):  
Mergers And Acquisitions ◽  
Stock Prices ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Financial Statement ◽  
Event Analysis ◽  
Analysis Method ◽  
Basic Principles ◽  
Study Methodology ◽  
Modern Work

Subject. The article presents the basic principles of the event research methodology, which is one of the most popular empirical tools in corporate finance, and mergers and acquisitions. Objectives. The article introduces the main methodologies for calculating expected and abnormal returns, the main approaches for testing abnormal returns and measuring the statistical significance of the results, and it also notes the advantages and limitations of the methodology. Methods. Based on a content analysis of the top classical works in event analysis, the main algorithm and research approaches of the method are presented. The basic concept has been expanded taking into account the results of modern work aimed at improving the methodology. The applicability of the method and its relevance were verified based on the analysis of spotlight publications for 2015–2020. Results. The article provides a review of the latest developments in M&A research. It highlights the main modern trends in the application of the event analysis method. The methodology is shown to be easy to use, with market data used for analysis available in major financial databases. This allows for empirical research with a large sample of securities. In addition, stock prices reflect the direct expectations of investors and best reflect the value created by the event when compared to financial statement analyses that are often misstated. Conclusions and Relevance. It is concluded that the event analysis method remains the key methodology in the field of mergers and acquisitions and is actively used by researchers. Improved econometric approaches allow for increased statistical significance and more accurate results.

Testing Market Reaction On Stock Market Delisting In Russia

2021 ◽  
Vol 15 (3) ◽  
pp. 14-27
Author(s):  
Елена Моисеевна Рогова ◽  
Maria Belousova
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Statistical Significance ◽  
Abnormal Returns ◽  
Global Market ◽  
Public Companies ◽  
Market Participants ◽  
Study Methodology ◽  
Available Information ◽  
The Impact

This paper expands the available information on the effects of delisting in Russia, and represents a rare empirical analysis of the impact of external events on securities prices in this major global market. We seek to evaluate how stock prices of competing companies fluctuate around the dates of stock market delisting announcements and completion. We analyse stock prices as correlated with company delisting events from 2004 to 2019 on 552 companies on the Russian MOEX Exchange. The event study methodology is used to evaluate the abnormal returns of rival companies close to relevant delisting dates. These data were checked for statistical significance using the standardised Patell residual test. The results indicate a significant competitive effect on stock prices both on the dates of delisting announcement and on completion, with more significant returns close to announcement dates. These effects were found to influence the prospects not just of individual groups of companies, but of all market participants. We may conclude from our results that delisting is not an event limited in effect to only one company, but impacts the industry as a whole, temporarily changing its value. As such, it will interest both shareholders and managers of public companies, and any participants of industries in which delisting occurs.

Market reactions to the inclusion of people with disabilities

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Claudia Araceli Hernández González
Keyword(s):  
Event Study ◽  
Stock Prices ◽  
Stock Price ◽  
Abnormal Returns ◽  
People With Disabilities ◽  
Market Reactions ◽  
Content Type ◽  
Study Methodology ◽  
Research Advance ◽  
The Impact

PurposeThis study aims to provide evidence of market reactions to organizations' inclusion of people with disabilities. Cases from financial journals in 1989–2014 were used to analyze the impact of actions taken by organizations to include or discriminate people with disabilities in terms of the companies' stock prices.Design/methodology/approachThis research is conducted as an event study where the disclosure of information on an organization's actions toward people with disabilities is expected to impact the organization's stock price. The window of the event was set as (−1, +1) days. Stock prices were analyzed to detect abnormal returns during this period.FindingsResults support the hypotheses that investors value inclusion and reject discrimination. Furthermore, the impact of negative actions is immediate, whereas the impact of positive actions requires at least an additional day to influence the firm's stock price. Some differences among the categories were found; for instance, employment and customer events were significantly more important to a firm's stock price than philanthropic actions. It was observed that philanthropic events produce negative abnormal returns on average.Originality/valueThe event study methodology provides a different perspective to practices in organizations regarding people with disabilities. Moreover, the findings in this research advance the literature by highlighting that organizations should consider policies and practices that include people with disabilities.

scholarly journals Impacto dos Ratings de crédito nas ações de empresas de capital aberto no Brasil

2017 ◽  
Vol 16 (2) ◽  
pp. 573-602
Author(s):  
Rafaela Augusta Cunha Silveira ◽  
Renata Turola Takamatsu ◽  
Bruna Camargos Avelino
Keyword(s):  
Stock Prices ◽  
Credit Rating ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Final Analysis ◽  
Share Prices ◽  
New Information ◽  
Agency Issues ◽  
Study Methodology ◽  
The Impact

Resumo O rating de crédito expressa uma opinião, por intermédio de escalas, sobre a qualidade do crédito de empresas, utilizado-a como medida de avaliação de risco no mercado. Agências de classificação de risco de crédito, como a Moody’s, divulgam os ratings que atribuem às empresas. Primeiramente, essas agências emitem o new rating, que representa o primeiro rating da companhia, e, posteriormente, essa emissão pode apresentar variações, denominadas upgrades e downgrades, relativas a boas e más notícias, respectivamente. Além disso, os ratings podem ser colocados em uma Watchlist quando, em breve, pode haver uma mudança do rating para downgrade ou para upgrade. O objetivo com este estudo consistiu, diante do que foi tratado, em abordar o impacto do rating de crédito sobre os preços das ações de empresas listadas na bolsa de valores brasileira. Para alcançar o objetivo proposto, foi analisada uma amostra de 44 empresas comercializadas na BM&FBovespa e 65 ratings nacionais de longo prazo emitidos pela Moody’s entre 2000 e 2015. Utilizou-se a metodologia de estudo de eventos, com os retornos normais calculados pelo modelo de retornos ajustados ao risco e ao mercado, e o Teste-F e o Teste-T para verificar a significância dos resultados. As análises finais evidenciaram que os preços das ações não são afetados de forma significativa pelas divulgações dos new ratings, downgrades, upgrades, on watch – possible downgrades e on watch – possible upgrades em nenhuma janela do evento, indicando que os ratings, para a amostra analisada, não trazem novas informações ao mercado.Palavras-chave: Ações. Rating. Estudo de eventos. Retornos anormais. Abstract Credit ratings are used as a mean to investors get new information on the companies by reducing the information asymmetry in the market. Thus, the rating is an important mean of business information with investors, enabling share prices relating to companies react to it. Branches of credit rating as Moody's, disclose the ratings they assign to companies. First, the agency issues the new rating, which represents the company's first rating, then this issue may vary, upgrades and downgrades calls relating to good and bad news respectively. In addition, the ratings could be placed in a Watchlist when, soon there may be a change to the rating downgrade or upgrade. The purpose of this study was to discuss the impact that the credit rating has on stock prices of companies listed on the Brazilian stock exchange. For a sample of 44 companies traded on BM&FBovespa and 65 long-term national ratings issued by Moody's between 2000 and 2015, we used the event study methodology, with normal returns calculated by the model of returns adjusted for risk and market the F-Test and T-Test to test the significance of the results. The final analysis showed that stock prices are not significantly affected by the disclosures of new ratings, downgrades, upgrades, on watch – possible downgrades and on watch – possible upgrades in any event window, indicating that the ratings do not bring new information to the market.Keywords: Stocks. Rating. Event studies. Abnormal returns.

EFFECT OF BONUS ISSUE ON STOCK PRICES OF COMPANIES QUOTED AT THE NAIROBI SECURITIES EXCHANGE

2017 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Patrick Maina Gachuhi ◽  
Cyrus Iraya
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Secondary Data ◽  
Market Model ◽  
Expected Returns ◽  
Policy Makers ◽  
Study Methodology ◽  
The Difference ◽  
Event Study Methodology

Purpose: The purpose of this study was to determine the effect of bonus issue on stock prices of companies quoted at the Nairobi securities exchangeMethodology: The study adopted an event study methodology since the study was concerned with the establishment of the information content of bonus issue announcement on share performance at the NSE. The population of this study was 61 companies listed in the NSE. A sample size of 10 listed companies was focused on as there were only 10 companies which had issued bonuses between 2009 and 2012. The study used secondary data to gather information. The collected secondary data was coded and entered into Statistical Package for Social Sciences (SPSS, Version 20) for analysisResults: The study findings revealed that there was a drastic incline from year 2009 to year 2010 followed by a slight decrease in abnormal returns in the following years, Abnormal returns present the difference between the actual returns and the expected returns over a certain period of time. Study findings from the market model indicated that the market return is a good predictor of stock returns.  ANOVA results indicated that abnormal returns after bonus issue were significantly higher than abnormal returns before bonus issue. ANOVA results also indicated that actual stock returns were significantly higher after bonus issue than before the bonus issuePolicy recommendation: The study recommends the NSE to establish and enhance policies for investing so as to attract and encourage large institutional and foreign investors to participate at the NSE. The study also recommends that policy makers and regulators at the NSE are encouraged to encourage more research on the NSE form of efficiency; this will provide a forum for investors to get the information on the form of efficiency of the market and boost their confidence when investing at the NSE

scholarly journals Stock Market Reactions to Financing and Payment Decisions for European Mergers and Acquisitions

2020 ◽  
Vol 4 (2) ◽  
pp. 41-89
Author(s):  
Wolfgang Bessler ◽  
David Kruizenga ◽  
Wim Westerman
Keyword(s):  
Stock Market ◽  
Mergers And Acquisitions ◽  
Abnormal Returns ◽  
Market Reactions ◽  
Valuation Effects ◽  
Payment Methods ◽  
Cumulative Abnormal Returns ◽  
Study Methodology ◽  
Acquisition Announcements ◽  
Stock Market Reactions

Aim: We analyze stock market reactions to merger and acquisition announcements for firms in Europe and contribute to the literature by providing empirical evidence how the decisions with respect to alternative financing sources (equity or debt) and the methods of payment (cash or stock) affect the magnitude of the valuation effects.   Research design: An event study methodology is applied to 717 M&A transactions. We analyze the size of the cumulative abnormal returns using the financing sources and payment methods and other variables as the relevant determinants.   Findings: The cumulative abnormal results suggest that target shareholders and bidder shareholders in private deals benefit from mergers and acquisitions. The effect found is centered around the announcement date, making our findings consistent with market efficiency. Debt financed deals outperform equity financed deals and cash paid M&A outperform stock paid M&As, due to information asymmetry, signaling and agency effects.   Originality: This study adds to our understanding of the relevance of the financing sources and the payment methods for mergers and acquisitions in Europe.   Implications: This study may help practitioners to better assess the valuation effects of alternative financing sources and payment methods when acquiring other firms.     JEL: G32, G34

scholarly journals Economic Consequences of Section Transfers in Japan: Change in Investor Base

2021 ◽  
pp. 1-28
Author(s):  
Rodrigue Majoie Abo
Keyword(s):  
Stock Prices ◽  
Stock Exchange ◽  
Abnormal Returns ◽  
Base Change ◽  
Price Impact ◽  
Economic Consequences ◽  
Final Sample ◽  
Study Methodology ◽  
First Time ◽  
Event Study Methodology

Transfer of stocks to a more regulated section within the same stock exchange is a quasi-natural experiment that enhances the investor base of companies. The purpose of this paper is to examine for the first time this investor base change and its price-impact. Considering the Japanese Exchange Group merger in 2012 and its structural amendments, the author uses a final sample of 181 firms between 2014-2019. An event study methodology is used to examine the abnormal returns and trading activity in relation to the investor base change proxy. The study also uses robust MM regression analysis to investigate whether the expected price-impact has is temporary or permanent. The results demonstrate that companies that had the largest positive shift in investor base also experienced the largest positive abnormal returns (+ 3.74%) and volume gains. Crucially, the author found no evidence of reversal of this price-impact, inconsistent with the price-pressure hypothesis. Instead, the increase in stock prices caused by section transfer to a more regulated section seems to be permanent. Keywords: Section transfers, More regulated section, TSE1, TSE2, Investor Base Change, Permanent price-impact.

scholarly journals BANKING STOCK ABNORMAL RETURN ANALYSIS OF PRE AND POST MERGER AND ACQUISITION IN INDONESIA

JEMBATAN ◽  
2020 ◽  
Vol 17 (1) ◽  
pp. 13-24
Author(s):  
Rivanny Astricia ◽  
Isni Andriana ◽  
Reza Ghasarma
Keyword(s):  
Mergers And Acquisitions ◽  
Government Policy ◽  
Abnormal Return ◽  
Abnormal Returns ◽  
Merger And Acquisition ◽  
Paired Sample ◽  
Significant Difference ◽  
Study Methodology ◽  
The Difference ◽  
Event Study Methodology

The number of mergers and acquisitions (M&A) in Indonesia is growing because of government policy and also their usefulness as a corporate tool to pursue strategic growth and profit. This study aims to analyze the abnormal returns of banking industries pre and post-merger and acquisition in Indonesia. Using a sample of 7 M&A deals in Indonesia from 2018 to 2019, the event study methodology used in this study is Paired Sample T-Test to tell the difference between pre and post abnormal returns. The data that use for calculating is -30 until +30 of Merger and Acquisition. The result shows that from 7 mergers and acquisition there is only one bank that has a significant difference while the rest does not have a significant difference pre and post the event. This research hopefully can be used for further research, useful for investment practitioners.

scholarly journals Do Chinese Stock Markets React To The Newspaper Recommendations?

2011 ◽  
Vol 1 (3) ◽  
Author(s):  
Francis Cai ◽  
Lianzan Xu ◽  
C.K. Leung ◽  
Huifang Cheng
Keyword(s):  
Stock Prices ◽  
Stock Markets ◽  
Abnormal Returns ◽  
Strong Form ◽  
Market Model ◽  
Delayed Response ◽  
Chinese Business ◽  
Study Methodology ◽  
Chinese Stock Markets ◽  
The Impact

<p class="MsoNormal" style="text-justify: inter-ideograph; text-align: justify; margin: 0in 0.5in 0pt; text-autospace: ideograph-numeric; mso-layout-grid-align: auto;"><span style="font-family: &quot;Times New Roman&quot;,&quot;serif&quot;;"><span style="font-size: x-small;">This paper studies how the stock prices in Chinese stock markets react to the stock recommendations from a Chinese business newspaper Zhong Guo Zheng Quan Bao (China Security). Using event study methodology and market model as a benchmark, we calculate abnormal returns to ascertain the impact of published recommendations. We find that there are no statistically significant long-term abnormal returns associated with the published recommendations. However, there are profitable opportunities if investors act prior to the published recommendations. We also find that the recommendations from the newspaper causes a significant short term movement two days after the publication day, suggesting a delayed response from the investors who act on the recommendation. The delayed response shows the gradual dissemination of the information in Chinese stock markets. In summary, these results indicate that press recommendations of Chinese stocks contain no useful economic information for investors who act on the published recommendations. The possible abnormal returns for investors who buy the stocks before the recommendations are made public are evidence of a market that is strong-form inefficient and the delayed response from investors to the newspaper recommendations is most likely the evidence of a market that is semi-strong-form inefficient.</span></span></p>

Effect of the Patient Protection and Affordable Care Act on for-profit hospitals in the USA

2020 ◽  
Vol 14 (2) ◽  
pp. 201-215
Author(s):  
Paul Sergius Koku
Keyword(s):  
Affordable Care Act ◽  
Stock Prices ◽  
Abnormal Returns ◽  
Content Type ◽  
Significance Level ◽  
For Profit ◽  
Patient Protection ◽  
Negative Effect ◽  
The Usa ◽  
Study Methodology

Purpose This study aims to examine the effect of the Patient Protection and Affordable Care Act (PPACA) on for-profit hospitals in the USA. Design/methodology/approach The study uses the event study methodology to examine the stock market’s reaction to the passage of the PPACA. Findings The results of the analysis do not show a negative effect; on the contrary, the stock prices of for-profit hospitals increased, on average, by 6%. The cumulative abnormal returns were 5.64% with a generalized z-value of 3.851 with a significance level of 0.001 (two-tailed test). This translates into an average gain of $230,537,096 for the four days (dates) that a positive step was taken in making the Affordable Care Act (ACA) a law of the country. Practical implications Because the study suggests that for-profit hospitals will be profitable under the PPACA, one could expect to see growth or, at the minimum, expansion in for-profit hospitals under the Act. Furthermore, and consistent with the principles of marketing, one would expect all the for-profit hospitals, at this nascent stage of the ACA, to pull resources together to promote the benefits of having the ACA. Originality/value To the best of the author’s knowledge, this is the first study to examine the effect of the PPACA on the operations of for-profit hospitals.

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