Etienne Redor

Stock Exchange Mergers and Market Efficiency

Abstract The aim of this article is to examine the impact of stock exchange mergers on the degree of informational efficiency. For this purpose, we apply the generalized spectral shape test for the martingale difference hypothesis to the stock returns before and after the 31 domestic and cross-border mergers completed from 1997 to 2011. The test is conducted with moving subsample windows, allowing us to detect the periods of (in)efficiency, and thus to conduct a comparative analysis for pre-merger and post-merger periods. We find that higher levels of efficiency are less frequent than lower levels of efficiency after a stock exchange merger. We also find that the impact on the level of efficiency depends on a range of merger characteristics such as the level of development, size, geographical diversification and industrial diversification of stock exchange.

The Choice of the Payment Method in Mergers and Acquisitions

Mergers and acquisitions are major events in a firm’s life. It is not surprising, that numerous studies aim at explaining this phenomenon. Since the late 1970s, the number of studies following the evolution of the number of deals. Among the various points that have been studied by researchers in finance, we can identify the study of the motivations of mergers and acquisitions (the market power, the hubris hypothesis, the economy of scale and the economy of scope, the managerial hypothesis, etc.), the shortand long-term performances for target’s and bidder’s shareholders, the vast merger waves, and the choice of the payment methods. The latter has been the subject of numerous research as well as empirical and theoretical studies. A part of the literature on this issue focuses on the impact of the choice of the payment methods on the shareholders’ wealth. Concerning the returns earned by the bidder, Travlos (1987) reported negative abnormal returns when the operation is financed with stocks but positive abnormal returns when it is financed with cash. In addition, Antoniou and Zhao (2004) showed that the bidders’ returns are lower when the operation is financed in stocks than in case of alternative combined and cash offers. Similarly, many empirical studies reveal that the target’s returns are higher in cash offers than in stock offers (Huang and Walkling, 1987; Franks et al., 1988; Eckbo and Langohr, 1989), confirming that the choice of the payment method has an impact on the profitability of a takeover. A second part of the literature has tried to explain the choice of the payment method by managers. Many theories and many models have thus been developed; primary among these are informational asymmetry models. As their name indicates, they are based on the principle that there is asymmetry between the information owned by the managers and the other agents of the market. In other words, managers have access to private information concerning the firm’s stocks value and its investment opportunities, whereas