Chapter 16 Shareholders’ value creation and destruction: The stock prices’ effects of merger announcement in Japan

Abstract

Based on the event study methodology this chapter tests value creation, buying growth, and hubris hypotheses on the sample of 62 Japanese mergers with announcement in period 1993–2005. We find an average 1.19% cumulative abnormal return in 3 days surrounding the merger announcement. The findings suggest that differences in financial resources allocation pattern may provide a source of value gain. Further, mergers with fast-growing target are value enhancing when acquirer has prior ownership in target. Announcement returns are adversely related to acquirer's past performance, implying that well-performing acquirers possibly overestimate the true value of deal and overpay target.

Citation

Zrilic, O. and Hoshino, Y. (2007), "Chapter 16 Shareholders’ value creation and destruction: The stock prices’ effects of merger announcement in Japan", Kim, S.-J. and Mckenzie, M.D. (Ed.) Asia-Pacific Financial Markets: Integration, Innovation and Challenges (International Finance Review, Vol. 8), Emerald Group Publishing Limited, Leeds, pp. 327-345. https://doi.org/10.1016/S1569-3767(07)00016-7