The announcement effect of mergers and acquisitions on shareholders' value: event study on Finnish public companies

Effects of M&A announcements on shareholder’s value has been broadly researched area in past decades. However, there are inconsistent results, hardly any studies include Finnish market and daily returns are most commonly used to measure abnormal returns. This study sheds light to the Finnish market and uses intra-day price data to capture immediate intra-day market reactions. This study focused on examining effects of M&A announcements for acquirer’s shareholders. The data set included M&A announcements published as stock exchange releases with exact timestamps and stock price data with 5-minute time intervals from 2006 to 2009 for companies listed in Helsinki Stock Exchange. The thesis focused on short-term returns, and event study with 10-day estimation window and 3-day event window was conducted for measuring intra-day returns. Standardized cumulative abnormal returns (SCAR) was chosen as a metric for shareholder returns and statistical significance was examined by J2 test statistics. Additionally, effects of transaction-specific attributes on returns were researched by conducting a multivariate regression on 3-day SCAR. Acquirer’s shareholders received positive SCAR of 0.37% in 3-day event window, and the result was significant at 99% confidence level. The market reaction to an announcement was immediate, and SCAR reached the maximum 35 minutes after announcement, followed by a slight negative drift. A multivariate regression on SCAR revealed that use of stocks as a payment method compared to cash payment yielded lower returns. This result was statistically significant at 95% confidence level. The study also suggested that vertical transactions yielded lower returns compared to horizontal transactions and target being a public company was a negative factor. However, these suggestions did not reach statistical significance