ch08 - Chapter 8 Empirical Tests of M&A Performance...

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Empirical Tests of Empirical Tests of 8 8 Chapter Chapter
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Chapter 8-2 Issues in Empirical Studies Measurement of combined returns to target and bidder shareholders Factors affecting magnitude of returns Measurement of post-merger performance Tests of alternative theories Determine whether or not social value is enhanced by mergers Guides to management for merger planning
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Chapter 8-3 Measure combined returns to explain cause of mergers Positive: synergy and efficiency Negative: agency costs, managerial entrenchment Zero: redistribution of wealth from bidder (hubris) Bulk of event study evidence suggests mergers have positive returns on average
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Chapter 8-4 Research Paper Year Window Target Return Bidder Return Comb. Return Bradley et al 1988 -5,+5 31.8% 1.0% 7.4% Kaplan, Weisbach 1992 -5,+5 26.9% -1.5% 3.7% Servaes 1991 -1, resolve 23.6% -1.1% 3.7% Mulherin, Boone 2000 -1,+1 20.2% -0.4% 3.6% Andrade et al 2001 -1,+1 16.0% -0.7% 1.8%
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Chapter 8-5 More Analysis: Berkovitch, Narayanan (1993) Correlation among target, bidder, total gains Target & bidder have positive correlation – synergy driving force (but agency and hubris present in some deals) Banking industry – high activity – deregulation Becher (2000) – returns over 3% – synergy Brook et al (1998) – positive stock reaction of banks to deregulation Houston et al (2001) – mergers driven by cost savings rather than revenue enhancement
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Chapter 8-6 Targets almost always experience large gain in shareholder wealth – effects usually stem from merger effects and not revaluation of target firms Cash deals usually create more target wealth – possibly due to taxes Multiple bidders result in higher returns for target Target share prices have a positive run-up in
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This note was uploaded on 05/10/2011 for the course MGT D72 taught by Professor Chau during the Spring '11 term at University of Toronto- Toronto.

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ch08 - Chapter 8 Empirical Tests of M&A Performance...

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