Measuring the effect of mergers and acquisition on North America stock market

Abstract

This study is investigate whether or not mergers and acquisitions (M&A) can create a value for shareholders. We employ the M&A data to test whether or not the North America stock market have achieved the Semi-strong form market efficiency. In order to investigate these two objective, an event study methodology is used in this study. Two data sets processed in this event study. The first one is the M&A announcements data in North America from 1979 to 2006 with 71,724 observations. The second data set is the daily return of all the public company and index from 2003 to 2006 with 4,549,085 observations. After analyzed the average cumulative abnormal return (ACAR) from short term event window and long term event window around the M&A announcement date. The study found there is positive and significant ACAR in short term after announcement, which means the North America stock market have not achieved the Semi-strong form of market efficiency. However, there is no significant ACAR in long term, which means M&A does not create value to shareholders in North America stock market.