An Empirical Study of the Value Creation on the Abnormal Return on Acquisitions and Mergers: In Relation to the Business Cycles

Nick Mondrup de Fries & Mikkel Kofod Madsen

Student thesis: Master thesis


Many studies have investigated M&A activities for the acquiring firm through history, with different conclusion. The main purpose of this thesis is to investigate whether M&A activities is creating firm value in the short term, but also to investigate the business cycles effect on the abnormal return. The authors would like to investigate, whether the time factor could be the source to why event study’s conclusions differ from one another. The study applies well tested event study methodology, testing short term abnormal returns for the time period 1998-2014. Hypothesis from corporate finance and M&A theory is testes by conducting parametric and non-parametric test. The theories that are tested are Capital structure, Pecking Order, Time-Varying Adverse Selection Costs, Agency Cost of Free Cash Flow, Agency Costs of Overvalued Equity and more. Furthermore the observations are divided into business cycles to investigate for differences in the abnormal return. In general it is found that M&A’s creates a positive abnormal return. By testing the different hypothesis on the different business cycles the result shows differences in the abnormal return. The authors applied some short economic explanation to why this changed in the abnormal return by an economic point of view by discussing the business cycles characteristic. However the change in the abnormal return was not significant different the cycles in-between, but the authors do observe tendency where the business cycles have an impact on the abnormal return.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages129