Company And Acquisition ( M & S

6430 Words Jul 30th, 2015 26 Pages
I. Introduction
In the past decades, the behaviours of merger and acquisition (M&A) have been active in the worldwide markets. This phenomenon is mostly driven by the desire to leverage synergies to increase stock price and profits, expand market share, and diversify market risk. A firm’s variability of stock return, defined as risks, can be divided into unsystematic and systematic risk (Hillier et al., 2013, 784). While unsystematic risk affects a specific firm or single asset, systematic risk affects a group of assets or businesses (Hillier et al., 2013, 304). Many empirical studies have shown how an M&A announcement influences stock performance in the market by examining abnormal returns, yet returns are related to specific firms instead of the whole market. Conn (1985) indicates that M&A might change the operating and/or financial risk of both bidders and targets, while non-M&A events such as dividend or earnings announcements are unlikely to make firms’ systematic risk different. The firm’s market risk is commonly measured through VaR (Value at Risk), expected loss, leverage, volatility, and covariance (i.e., beta) in the studies; however, only covariance can moderately explain the systematic risk (Acharya et al. 2010). Since many studies state that a firm 's market risk may be reduced by M&A, this paper examines the covariance of between a firm 's stock and market returns, known as beta risk of acquirers, before and after an M&A announcement in the United States…
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