| Summary: | The number of mergers and acquisitions are rapidly increasing in emerging market in
recent years and M&As have become the most important and practical corporate tool
to pursue firm’s external growth. M&A activities not only can expand market shares
but also create value for companies and shareholders. This paper investigates the
impact of mergers and acquisitions on the stock returns of acquiring firms in the UK
market for the period between 2001 and 2005. This research firstly introduces some
concepts of M&A, such as definitions, types, motivations and so on. Then it reviews
some relevant findings of previous empirical works. Furthermore, event study is
regard as the main methodology of this study and the research is conducted based on
two even windows: five-day (-2, +2) and eleven-day (-5, +5). Besides, we use
cross-sectional regression to examine which factor would be the most influenced
determinant on bidder’s performance. Our result reveals that bidding firms on average
receive positive abnormal returns around the announcement date. In terms of targets
status, the evidence shows that acquisitions generate statistically significant positive
returns to bidders when they acquire private and subsidiary targets while insignificant
negative returns when they acquire public targets. By analysing the sub-samples of
different factors (i.e. relative size, acquirer size, methods of payment, acquirer’s
book-to-market ratio and industry), we find that the most influenced factors are cash
payment and relative size of acquisitions, and both of them have positive effect on
firm’s performance during M&A activities.
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