Abnormal Returns in Merger and Acquisition Announcements in the Telecommunication Industry: An Event Study Approach

Abstrakt

Since the turn of the millennia, the volume of M&A deals in the telecommunication industry has increased enormously, much due to deregulation and increased globalization. Prior to the 1990s, the industry was nearly fully monopolized, consisting of giant national and regional operators (Warf, 2003). Since then, rapid innovation and deregulation has intensified the industry’s competitiveness. Corporate consolidation has become a prevalent strategy in ensuring competitiveness and survival. Resulting in the question of whether pursuing this strategy is the optimal decision in terms of value creation. Several econometric studies have analyzed the stock reaction following announcements of mergers and acquisitions. However, a majority of such studies target either the general M&A announcement reaction across all industries or focus outside the telecommunication industry. This paper distinguishes itself from existing theory, by investigating the effect of both firm-specific and dealspecific variables on abnormal returns of the acquiring firm following a merger announcement. In addition, this paper aims at exploring whether the reaction on abnormal returns and its explanatory variables varies across geographical regions. The period of investigation spans from January 1st, 1998 to 31st of December, 2016, and the market model is applied to calculate the deviation between expected and realized returns surrounding the days of the M&A announcement. By analyzing the isolated effect on abnormal returns, we find interesting deviations across regions, questioning the hypothesis of efficient markets and investors’ putative rational behavior. Furthermore, through estimating the effect of 18 independent variables on abnormal returns, this paper reveals new findings of numerous variables having a significant effect on abnormal returns.