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Indexing Mergers and Acquisitions

Gang, J.; Guo, M.; Hu, N.; Li, X.

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Authors

J. Gang

N. Hu

X. Li



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.

Citation

Gang, J., Guo, M., Hu, N., & Li, X. (2018). Indexing Mergers and Acquisitions. Quantitative Finance, 18(6), 1033-1048. https://doi.org/10.1080/14697688.2017.1369145

Journal Article Type Article
Acceptance Date Aug 11, 2017
Online Publication Date Oct 6, 2017
Publication Date 2018
Deposit Date Aug 17, 2017
Publicly Available Date Apr 6, 2019
Journal Quantitative Finance
Print ISSN 1469-7688
Electronic ISSN 1469-7696
Publisher Taylor and Francis Group
Peer Reviewed Peer Reviewed
Volume 18
Issue 6
Pages 1033-1048
DOI https://doi.org/10.1080/14697688.2017.1369145
Public URL https://durham-repository.worktribe.com/output/1352244

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