U.S. Mergers and Acquisitions: A Test of Market Efficiency

Document Type

Article

Publication Date

2009

Abstract

The purpose of this study is to test market efficiency with respect to merger and acquisition announcements using standard event study methodology. Specifically, this study analyzes the effects of U.S. company mergers and acquisition announcements on stock price’s risk adjusted rate of return using twenty recent mergers, as of August 31st, 2007. The weak, semi-strong, and strong form efficient market hypotheses which test an investor’s ability to earn a positive abnormal return on the basis of merger announcements are examined. Specifically, this work focuses on the semi-strong form test in an effort to test the efficiency of merger announcement public information. Evidence here supports semi-strong market efficiency along with a positive signal exhibited by the sample of acquiring firms during the event period. Evidence of lingering excess returns after the merger announcement was also observed.

Original Citation

von Gersdorff, N., Bacon, F. W. (2009). U.S mergers and acquisitions: A test of market efficiency. Journal of Finance and Accountancy/AABRI, 1(1), 69-76. http://www.aabri.com/manuscripts/09142.pdf

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