Determinants of Short-Term Value Creation through M&A for the Acquirer -The event study of the pharmaceutical industry focus on the Western European market

Abstract: Purpose: The first objective is to find whether M&A create value for pharmaceutical acquiring companies in the Western European market from a short-term perspective. Then we aim to examine the determinants of value creation for the pharmaceutical acquirer in the Western European market. Methodology: The event study is conducted to examine cumulative abnormal return for acquiring firms surrounding the announcement day to quantify value creation in the short run. Another quantitative approach carried out is the multivariate regression, testing the hypotheses about potential determinates for value creation. Besides a number of diagnostic tests are employed to ensure the validation and significance of final results. Theoretical perspective: Growth pursuit; synergy motives; industry relatedness; agency theory Empirical Foundation: 125 M&A deals in the pharmaceutical industry during the recent 20 years are studied in the event study. After data selection for completed factors in explanatory and control variables, 56 observations are available for the multiple regression. Conclusion: M&As create short-term value for acquiring firms in the pharmaceutical industry. Three variables, including R&D intensity, total assets and current ratio are determinants of short-term value creation for the pharmaceutical acquirer.