Stock price dynamics around merger and acquisition events: Empirical contributions to the Swiss corporate takeover market

Abstract

During the last century the number of corporate takeovers has been raising steadily and therefore attracted many scholars to conduct multifaceted research within this field. However, the Swiss M&A market is only covered poorly. Since current insights add considerable value to the existing evidence, the thesis states six hypotheses focused on the Swiss market for the post period of the sixth merger wave (2008 to 2011). In a first step, the paper uses the event study methodology and the ANOVA approach. By applying these tools, it measures the dynamics of the abnormal returns generated by Swiss bidding and target firms’ shares around M&A deal publications. This is done for short-term event windows, up to twenty-one days around the event announcement. In a second step, the abnormal returns are regressed on transaction characteristics to evaluate the sensitivities and drivers by the ordinary least square estimation approach (OLS). The abnormal returns are computed by using the standard market model and the adjusted beta market model. To account for the difference of the capital structure regarding the financial industry, the OLS-analysis is done with and without the data from the banking sector. While the thesis accepts hypothesis one, which states that shareholders of a Swiss target company receive a positive abnormal return around an M&A announcement, it can not accept hypothesis two that claims the same behavior for the investors of the bidding firm. Based on these propositions, hypothesis three stipulates that the abnormal return is significantly higher for the shares of the target then for the bidding firm. This outcome is reliably accepted over all event windows. Hypothesis four and five test if cross-border transactions do create the same abnormal return as domestic deals for shareholders of bidding and target firms. The outcomes imply that cross-border deals do generate significantly less abnormal value for the investors compared to domestic deals. Furthermore, the empirical analysis finds a dependence on the different specified industries. Finally, hypothesis six argues that a higher stock share within the means of payment increases the abnormal return for the bidding company. The data during the post period of the sixth merger wave does not show significant influences on this issue for the abnormal return generation. While hypotheses one and three are in line with the existing international empirical literature, the others mainly contradict it for the most recent period on the Swiss corporate takeover market.