Evangelos Vagenas-Nanos

A Run-Down of Merger Target Run-Ups

Correspondence MarieDutordoir, AllianceManchesterBusiness School,University ofManchester,ManchesterM139PL,UK. Email:marie.dutordoir@mbs.ac.uk Abstract We provide evidence of a drastic drop in stock run-ups of U.S. target firms preceding merger and acquisition (M&A) announcements over the past decades. The median target run-up declines from approximately 10% in the 1980s to 2% after 2010. The trend in target run-ups cannot be fully explained by deal or firm characteristics associated with deal anticipation. However, it disappears after controlling for changes in the strength of U.S. insider trading regulation over the research period. Further analyses corroborate our conclusion that more stringent insider trading regulation is the most likely explanation for the reduction in target run-ups.

Uncertainty triggers overreaction: evidence from corporate takeovers

Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to it. We test this theoretical prediction in an M&A framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, acquiring firms generate highly positive and significant gains following the announcement of private stock and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty, when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition. Overall, we provide empirical evidence that shows that information uncertainty plays a significant role in explaining short-run acquirer abnormal returns.

Mergers and Acquisitions in Frontier Markets: A Comparative Analysis

This chapter examines the behavior of mergers and acquisitions (M&A) in frontier markets. There has been some M&A activity in frontier markets since 1999, with a rising trend after 2006. However, acquirers based in frontier markets fail to create superior abnormal returns for their shareholders compared to acquirers from elsewhere in the world, as they seem to lack the expertise to do so. Overpayment is unlikely to be the explanation since target firms in frontier markets receive the lowest premiums. Acquirers from developed countries achieve their highest abnormal returns when they bid for target firms in frontier markets.