Uncertainty of M&As under asymmetric estimation.

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Date: Jan. 2021
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 251 words

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Abstract :

Keywords Uncertainty; Risk; Mergers and acquisitions; GJR-GARCH; Cross-sectional study Highlights * Estimation bias in M&A leads to uncertainty that, can be addressed under the asymmetric estimation. * Discerning mergers from acquisitions provides disaggregate level results for each set of events. * Targets and bidders of merger sample accrue event-induced gain under the asymmetric estimation. * Acquirers (acquisition sample) register pre-announcement wealth loss, but not acquired firms. Abstract Mergers and acquisitions (M&As) are often surrounded by uncertainty since they do not always deliver the anticipated results. The uncertainty ascribed to the outcomes of M&As is not a boundary concept, rather guides firms' decision in favour of or against undertaking M&As. Typically, M&As suffer from estimation biases. Moreover, M&As are always treated synonymously as a single entity. Thus, evaluating M&A as a single event under traditional stationary specifications is not adequate for capturing the disaggregate effect of an individual event. This study examines announcement returns of both events individually under the asymmetric specification. Asymmetric specification captures the variance of uncertainty associated with the event outcome for each set of events. The findings further document acquirers (acquisition sample) register pre-announcement wealth loss, but not so with mergers. The cross-sectional analysis indicates that the announcement returns under asymmetric specification are associated with the deal characteristics of both sets of events, except deal premium. Author Affiliation: Newcastle University London, 102 Middlesex Street, London E1 7EZ, United Kingdom Article History: Received 11 March 2019; Revised 13 July 2020; Accepted 18 July 2020 Byline: Rama Prasad Kanungo [rama.kanungo@newcastle.ac.uk]

Source Citation

Source Citation   

Gale Document Number: GALE|A648491631