The Long Run Performance of Mega Mergers
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2015
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Haverford College. Department of Economics
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Award
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eng
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Open Access
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Abstract
This research seeks to analyze the long run performance of mergers that are in the 90th percentile of all U.S. mergers announced between 2001 and 2013. Mergers historically have been found to create negative abnormal returns for acquiring firms. Furthermore, there exists evidence from previous literature that there are short term negative abnormal returns for very large merger transactions. In order to find evidence of long term negative cumulative abnormal returns for large mergers, I use data from CRSP/COMPUSTAT as well as Thompson One to quantify the abnormal monthly returns of mega mergers that occurred between 2001 and 2013. From these databases, I obtain 1,156 mega mergers along with their respective monthly value weighted returns. I use these monthly returns to calculate excess returns from the risk free interest rate as well as to obtain a predicted value for each asset. I use the FamaFrench 5 factor pricing model to control for various company variables that could impact the firm’s abnormal returns. My results show that on average, mega mergers have significantly negative cumulative abnormal returns. Furthermore, I find evidence that during a merger wave, mega mergers will typically be overvalued until a future market correction.