Do announcements of mergers and acquisitions create value for shareholders? : evidence from US industrial firms

Abstract

The twenty first century started with the sixth merger wave and a tremendous increase has been observed in the number of corporate mergers and acquisitions since 2003. This study investigates whether the announcements of mergers and acquisitions (M&A) create a value for shareholders or not. In order to study the effect of merger announcements, 5337 M&A announcements in the US industrial firms between January 1, 2003 and December 31, 2006 are considered. This study follows traditional event study methodology. Results indicate that the announcement of takeover or merger is taken as a positive signal by the market and stock prices of the firms involved increase to reflect the effect of announcement. The analysis points to positive abnormal returns realized for shareholders and provide enough evidence to support the assertion that merger announcements create a value to shareholders’ wealth.