An empirical analysis of M&A bidders' profitability: the impact of financial and sovereign debt crises
Abstract: Expert often wonder what is the best time to announce an M&A. It is well known that M&A bidders usually register a negative stock performance at the transaction announcement. This study aims to investigate if the bidders' performance improves when the M&A is announced during a crisis period. This research considers the financial crisis (2008 - 2010) and the sovereign debt crisis (2011 - 2012) and it is focused on the less studied Nordic market and its comparison with the Italian market. In part 1, to test the hypothesis that bidders performed better in these periods, it is first analyzed the Nordic market to identify some M&A trends. Then, the study proceeds with an in-depth analysis of bidders' absolute, abnormal, and cumulative abnormal returns. The study is based on both statistical evidence and a series of regression analyses which aim to identify the market or accounting variables that explain bidders' returns. The results showed a difference between the two crises based on the severity of the crisis, however buyers' ARs and CARs are not statistically significant. The only exception regards financial crisis CARs, which are slightly positive and significant. In terms of variables' explanatory power, the market seems unable to explain bidders returns at the announcement, even though the regression significance increases with time and seems related to the crisis magnitude. Moreover, bidders' CARs are mainly explained by companies' cash flows and leverage, while the size, the sector and the profitability do not significantly impact. These results confirm that on average M&A bidders have a negative stock performance at the announcement of the transaction. However, the fact that this is one of the first studies on the Nordic market and the positive CARs observed during financial crisis open the possibility for further research especially now that we are exiting another crisis scenario. In part 2, are discussed the characteristics of the less developed, in terms of M&A, Italian market to follow with an analysis of the M&A trends and bidders' profitability during crisis periods. Buyers' performances are assessed through the same analyses of part one. Final results are not different from those observed in the Nordic market. However, the combined evidence proves the importance of the crisis impact in the determining the bidders' profitability. Moreover, differently from the Nordics, in Italy the market variables always explain a portion of bidders' returns probably due to the lower development of Italian M&A market.
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