sEvalEffect(25p) - Assessing M&A effectiveness Lecture...

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Assessing M&A effectiveness
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Lecture outline Ways to measure effectiveness Statistical evidence
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We’ve already discussed several perspectives on whether The Chicago School argument Markets are efficient Whenever markets aren’t efficient, some mechanism arises to combat inefficienty The Alternative M&As are games for managers to occupy their time But none of these give us a way to balance the costs and benefits of M&A activity
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Ways to measure effectiveness Empirically, we can measure the effect on shareholder wealth Event Study Methodology Compare stock price the day before the announcement with the price the day after Problem 1 - information leakage Solution: Look at a window around the announcement date Problem 2 - market effect Solution: Compare performance to the market
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Stock Prices Stock Prices vs TSE 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 12/31/97 1/15/98 1/29/98 2/12/98 2/26/98 3/12/98 3/26/98 4/9/98 4/24/98 5/8/98 5/25/98 6/8/98 Date Price 0 1000 2000 3000 4000 5000 6000 7000 8000 AEC Amber TSE
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Market model method Estimate the return compared to the market This is the most widely used method because it takes account of both risk of the market and the mean returns jt mt t j jt R R ε β α + + = mt t j jt jt R R CAR ˆ ˆ - - =
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This note was uploaded on 04/02/2009 for the course DEPARTMENT FIN 4320 taught by Professor Sherwoodbishop during the Spring '08 term at Southwestern.

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sEvalEffect(25p) - Assessing M&A effectiveness Lecture...

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