Are M&A returns and the effect of diversification different during a financial crisis?

Abstract: This thesis researches what effect the economic crisis of ’08-’09 had on the returns of M&A deals, and whether the type of diversification in the deal affected this relationship. In order to do this, a sample of 898 M&A deals announced between 2006 and 2011 is constructed. With this data an event study is executed, followed by an OLS regression. Both the event study and the regression find a significant negative effect of the crisis period on the abnormal returns of M&A deals, while no significant moderating effect of both cross-border and industrial diversification is found. The results show that it is important for other research on M&A returns to look at the state of the economic cycle at the point in time the M&A deal was announced, as this could influence the outcomes of these studies. Furthermore, the results should discourage firms to participate in M&A deals during crisis periods, as these will be value destroying compared to the same deals during non-crisis periods.