sEvalEffect(25p)

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

This preview shows pages 1–10. Sign up to view the full content.

Assessing M&A effectiveness

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Lecture outline Do M&As add value? Ways to measure effectiveness Statistical evidence
Is M&A good for the economy? We’ve already discussed several perspectives on whether M&As add value The Chicago School argument Markets are efficient Whenever markets aren’t efficient, some mechanism arises to combat inefficienty M&A are one such mechanism 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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Ways to measure effectiveness Do M&As add value? 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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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 β α ˆ ˆ - - =
Example Cumulative Abnormal Returns: Target

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Example Cumulative Abnormal Returns: Bidder
CAR example: Amber Cumlative abnormal returns (market model method) -1.2 -1 -0.8 -0.6 -0.4 -0.2 0 0.2 -40 -30 -20 -10 0 10 20 30 40 AMB AEC

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern