The Birth Of Event Study Method

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The birth of Event study method is frequently traced back to 1969, the first time Fama, Fisher, Jensen and Roll (1969, hereafter FFJR) introduced how event study method examines the impact of stock split on share price. Nowadays, the methods of payment on Mergers and Acquisitions can be analyzed by event study. Asquith(1983) argue that the previous studies, Dodd(1980) and Langetieg (1978), did not examine the possible changes in value and the market’s complete reaction during the merger process, and did not resolved the question whether the target firm’s stockholders gain averagely from merger. He point out that Langetieg (1978) just focus on the merger date as the event date, thus ignore the stock markets’ response in the…show more content…
After the announcement date, the market is uncertain whether the merger bid will be successful or not, the market reaction change in different situation at the merger date. Which are significantly positive excess returns for the successful target firms and significantly negative excess returns for the unsuccessful target firms. In addition, the data also shows that the changes in the interim period depends on the new information. The cumulative excess return rises from the announcement date until the merger date for the successful target firms. But for the unsuccessful target firms, the cumulative excess return increases at the announcement date but decrease after that and keep decreasing until the failure was confirmed. Asquith(1983) found that the stockholder gains and the successful merger bid are linked. And most of the gains from a merger go to the acquired firm’s stockholders, while the stockholders of the successful bidding firms earn little from the merger bid. 1. Motivation About the motivation of M&A, there are a range of hypothesis, observation data and empirical evidence, which were postulated in the reason decades. Dodd (1977) analyze the effects of tender offers on stockholders’ wealth and provide a number of alternative hypotheses according to empirical implications results. Roughly, It could be broadly categorized into two major theories, which is “Positive impact hypotheses” and “Zero Impact
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