Posterior analysis of mergers and acquisitions in the international financial market: A re-appraisal

Ullas Rao, Tapas Mishra

Research output: Contribution to journalArticle

Abstract

Do mergers and acquisitions (M&A) improve the wealth status of investors, and if so, amidst persistence of volatility shocks? This paper tests these propositions by employing in the first step, a modified event study approach, and estimating a long-memory conditional volatility model, in the second step. The financial and policy implications of M&A are varied and contestable, yet, from an investor’s perspective, the long-term adjusted gain from M&A depends not only on the immediate growth of wealth, but also the fact that such a growth would accompany reduced rate of volatility persistence. Although in the beginning, a high persistence of volatility cannot be ruled out, its presence in the longer-run implies that the wealth gains from M&A are unstable, leading perhaps to a further collapse of both the merged/merger and acquired/acquiring firms. We estimate a long-memory Generalized Conditional Heteroscedasticity (GARCH) model with a Markovian transition for a number of international firms, specifically in Asia, to show in the first place, whether volatility shocks display differential memory in the pre- and post-M&A periods and whether the asymmetric high persistence is in the aftermath of M&A. Our results point at a significant ‘non-zero’ and positive gain for investors following M&A, but this is combined with greater volatility persistence.
Original languageEnglish
Article number101062
JournalResearch in International Business and Finance
Volume51
Early online date23 Jul 2019
DOIs
Publication statusPublished - Jan 2020

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