Indexing mergers and acquisitions

Gang, J., Guo, J. (M.), Hu, N. and Li, X. (2018) Indexing mergers and acquisitions. Quantitative Finance, 18(6), pp. 1033-1048. (doi: 10.1080/14697688.2017.1369145)

Abstract

We measure the efficiency of mergers and acquisitions by putting forward an index (the ‘M&A Index’) based on stochastic frontier analysis. The M&A Index is calculated for each takeover deal and is standardized between 0 and 1. An acquisition with a higher index encompasses higher efficiency. We find that takeover bids with higher M&A Indices are more likely to succeed. Moreover, the M&A Index shows a strong and positive relation with the acquirers’ post-acquisition stock performance in the short run and operating performance in the long run. After constructing three portfolios under a buy-and-hold strategy, we find that efficient portfolios with the highest indices earn higher equity returns and monthly alphas than inefficient portfolios with the lowest indices. Overall, our findings indicate that the M&A Index is positively associated with merger outcomes for acquirers.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Guo, Professor Jie and Hu, Dr Nan
• Authors: Gang, J., Guo, J. (M.), Hu, N., and Li, X.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Quantitative Finance
• Publisher: Taylor and Francis
• ISSN: 1469-7688
• ISSN (Online): 1469-7696
• Published Online: 06 October 2017
• Copyright Holders: Copyright © 2017 Informa UK Limited, trading as Taylor & Francis Group
• First Published: First published in Quantitative Finance 18(6): 1033-1048
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher