Long-run Volatility and Risk around Mergers and Acquisitions
In this paper we study the changes in volatility and risk of acquirers around mergers and acquisitions and seek to understand the determinants of those changes. We find that there is a strong run-up in volatility and risk beginning four years before the merger. This pre-merger run-up is consistent with the hypothesis that M&As are a response to industry shocks. We find that for a period of about one year after the merger the cross-sectional average of the volatility measures continue to increase. Beyond that the systematic volatility and beta begin to decline. However, idiosyncratic volatility continues to increase for the next two years. The volatility patterns uncovered is also consistent with the risk of post-merger integration of the acquirer and the target firms that gets resolved slowly over time. Our findings may have important implications for understanding several issues, including the announcement effect of mergers, the diversification discount, and the long-run under-performance of acquirers in M&A transactions. The key insight is that as we understand the volatility and risk dynamics better, we will be able to compute risk-adjusted returns more accurately, potentially changing the conclusions of previous studies on these issues.
Mergers and Acquisitions Volatility Risk Diversification Long-run underperformance
Sreedhar T. Bharath Guojun Wu
University of Michigan
国际会议
昆明
英文
2005-07-05（万方平台首次上网日期，不代表论文的发表时间）