Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data
WZB Markets and Politics Working Paper No. SP II 2006-19
16 Pages Posted: 11 Oct 2006 Last revised: 10 Apr 2008
Date Written: October 2, 2007
This paper presents empirical evidence about the ability of event studies to capture future mergers' profitability measured by accounting data. We use a sample of large horizontal concentrations during the period 1990-2002 involving 459 firms either as merging firms or competitors, and contrast a measure of the mergers' profitability based on event studies with one based on balance sheet profit data. We show that using a long window around the announcement date (25 or 50 days before the event) increases the ability of capturing the ex-post merger effect: the pair wise correlation coefficient is positive and highly significant.
Keywords: Mergers, Merger Control, Event Studies, Ex-post Evaluation
JEL Classification: L4, K21, G34
Suggested Citation: Suggested Citation