Do Acquisitions Generate Abnormal Returns? Evidence from the Deregulated Electric Utility Industry

From 1992 onwards, the market for corporate control has been changing as a consequence of deregulation in the North American and West European electric utility industry. Motivated by the lack of consensus on the value creation of acquisitions in the deregulated electric utility industry, this study is conducted. Based on a three and eleven-day event window, cumulative abnormal returns (CARs) of 714 acquisition announcements between 1997 and 2017 stemming from North American and West European acquirers, it is found that acquisitions generate on average an insignificant CAR of 0.2%. West European bidders generate a significant return of 0.94% which outperforms the average CAR of -0.02% stemming from North American bidders. For the aggregate sample, it is found that geographic diversification strategies do not outperform each other and that industry-focussed deals outperform industry-diversified deals. North American managers should avoid cross-border deals within the North American region because these deals destruct shareholder value. West European managers should engage in geographic or industry-focussed deals because it is shown the stock market believes that these type of acquisitions generate synergies