Acquirers' Abnormal Returns and their Determinants in the Global Pharmaceutical Industry

Rakel Arnarsdottir

Student thesis: Master thesis


The pharmaceutical industry is highly dynamic and unique, featuring several distinct characteristics not applicable to other industries. These include high research and development (R&D) expenditures, heavy regulatory frameworks, and rigorous product approval processes. These features can make it challenging for companies to grow organically, making the pharmaceutical industry a prime example of an amenable sector to mergers and acquisitions (M&A). In empirical research, abnormal returns following M&A announcements are commonly analysed. However, there are limited amount studies explicitly focusing on the pharmaceutical sector and the factors influencing abnormal returns, especially with a focus on target-specific variables. This study analyses 126 M&A announcements in the global pharmaceutical industry between 2007 and 2022, assessing the value generated for acquiring companies' shareholders and the influence of several attributes obtained from the financial reports and the pipeline of the target companies on the acquiring companies' returns.

Using a linear regression model, the study also uncovered a few characteristics of the target companies that significantly impacted the cumulative abnormal returns of acquirers' stocks. Specific details extracted from the targets' financial reports, such as their liquidity and sales-to-assets ratio, had a positive influence on abnormal returns, whereas higher investments in R&D had the opposite effect. Additionally, medicines in the intermediate stages of the development process exhibited a negative influence. In contrast, medicines associated with lower risks and closer to receiving market approval demonstrated a positive impact.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2023
Number of pages91