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Posterior analysis of mergers and acquisitions in the international financial market: a re-appraisal

Posterior analysis of mergers and acquisitions in the international financial market: a re-appraisal
Posterior analysis of mergers and acquisitions in the international financial market: a re-appraisal
Do mergers and acquisitions (M&A) improve the wealth status of investors, and if so, amidst persistence of volatility shocks? This paper tests these propositions by employing in the first step, a modified event study approach, and estimating a long-memory conditional volatility model, in the second step. The financial and policy implications of M&A are varied and contestable, yet, from an investor’s perspective, the long-term adjusted gain from M&A depends not only on the immediate growth of wealth, but also the fact that such a growth would accompany reduced rate of volatility persistence. Although in the beginning, a high persistence of volatility cannot be ruled out, its presence in the longer-run implies that the wealth gains from M&A are unstable, leading perhaps to a further collapse of both the merged/merger and acquired/acquiring firms. We estimate a long-memory Generalized Conditional Heteroscedasticity (GARCH) model with a Markovian transition for a number of international firms, specifically in Asia, to show in the first place, whether volatility shocks display differential memory in the pre- and post-M&A periods and whether the asymmetric high persistence is in the aftermath of M&A. Our results point at a significant ‘non-zero’ and positive gain for investors following M&A, but this is combined with greater volatility persistence.
0275-5319
1-15
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Rao, Ullas
b98d33d4-d172-49c1-b516-bc6a63ab8584
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Rao, Ullas
b98d33d4-d172-49c1-b516-bc6a63ab8584

Mishra, Tapas and Rao, Ullas (2020) Posterior analysis of mergers and acquisitions in the international financial market: a re-appraisal. Research in International Business and Finance, 51, 1-15, [101062]. (doi:10.1016/j.ribaf.2019.101062).

Record type: Article

Abstract

Do mergers and acquisitions (M&A) improve the wealth status of investors, and if so, amidst persistence of volatility shocks? This paper tests these propositions by employing in the first step, a modified event study approach, and estimating a long-memory conditional volatility model, in the second step. The financial and policy implications of M&A are varied and contestable, yet, from an investor’s perspective, the long-term adjusted gain from M&A depends not only on the immediate growth of wealth, but also the fact that such a growth would accompany reduced rate of volatility persistence. Although in the beginning, a high persistence of volatility cannot be ruled out, its presence in the longer-run implies that the wealth gains from M&A are unstable, leading perhaps to a further collapse of both the merged/merger and acquired/acquiring firms. We estimate a long-memory Generalized Conditional Heteroscedasticity (GARCH) model with a Markovian transition for a number of international firms, specifically in Asia, to show in the first place, whether volatility shocks display differential memory in the pre- and post-M&A periods and whether the asymmetric high persistence is in the aftermath of M&A. Our results point at a significant ‘non-zero’ and positive gain for investors following M&A, but this is combined with greater volatility persistence.

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More information

Accepted/In Press date: 9 July 2019
e-pub ahead of print date: 23 July 2019
Published date: January 2020

Identifiers

Local EPrints ID: 435709
URI: http://eprints.soton.ac.uk/id/eprint/435709
ISSN: 0275-5319
PURE UUID: 105fa309-376c-4805-9a96-c67117ac1f43
ORCID for Tapas Mishra: ORCID iD orcid.org/0000-0002-6902-2326

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Date deposited: 18 Nov 2019 17:32
Last modified: 02 Jul 2022 01:49

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Contributors

Author: Tapas Mishra ORCID iD
Author: Ullas Rao

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