Do Mergers and Acquisitions Create Shareholder Value

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Do Mergers and Acquisitions Create Shareholder Wealth In The Pharmaceutical Industry?
Mahmud Hassan, Dilip K. Patro, Howard Tuckman and Xiaoli Wang*
Purpose: This paper analyzes mergers and acquisitions (M&A) focusing on the U.S. pharmaceutical industry in the period 1981-2004. This industry is chosen because it is global, engages intensively in M&A which it uses to both complement and substitute for early stage research, and because the potential abnormal returns to blockbuster drugs are substantial. It is our assumption that if abnormal returns to M&A exist in the short and long run, this is the industry to find them.
Design: Our study examines short term abnormal returns separating mergers from acquisitions and US-based from
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Given the potential for high returns from these types of M&A, it seems likely that if M&A is wealth enhancing, we should find this effect for the pharmaceutical industry. Finally, the monopoly or oligopoly structures that exist in several pharmaceutical product markets, support the expectation of abnormal returns from M&A, at least while patent protection is in effect (Bottazzi et al.,2001). Since over 80 percent of revenue is lost at the time of patent expiration and since the patent period is relatively short the window for abnormal returns in the long run may be limited (Berndt (2001).
3. Literature Review In the recent finance literature, most empirical analyses of the returns to M&A are based on event studies and the findings from these differ depending on whether the research is focused on the target or the acquiring companies. Varying time frameworks, abnormal return metrics, benchmarks and weighting procedures also make comparisons difficult and measurement of long-term abnormal performance complex. Loderer and Martin (1992) investigate 304 mergers and 155 acquisitions that took place from 1965-1986 and document a negative but statistically insignificant
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