The signaling role of Strategic Entry Timing in merger waves The effect of merger wave entry timing on the stock market response and the influence of Financial and Social signals

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Extant literature in strategic management research has examined the antecedents, causes and performance implications of M&A and merger wave activity. Although its importance is undisputable, M&A failure rates are high, and firms’ post-acquisition performance generally does not exceed its pre-deal operating results. Various scholars have tried to clarify the factors determining M&A performance, assessing numerous potential success factors. Recent work, however, has requested to combine the work on M&A performance with signaling theory, to examine the effectiveness of signals in M&A. Furthermore, scholars have called for more in-depth research on the temporal dimensions of M&A. Within the context of merger waves, this thesis takes on an integrative approach and combines both the literature on M&A performance and signaling theory with a temporal perspective. Taking on this perspective, the effectiveness of a firm’s entry timing signals, a firm’s financial signals and a firm’s social signals on the stock market response are examined. Using a sample of 220 unique deals over the period of 1993 to 2014 within the Energy and Power industry, this thesis finds that a firm’s entry timing within a merger wave is a credible signal that significantly affects the stock market response. Contrary to expectations, this relation is an inverted U-shape relation, with firms entering at the peak of the wave experiencing the most favourable stock market response. Further, the results indicate that the market reacts more favourably to deals financed with stock compared to cash-financed deals. Moreover, the results show limited support for a signaling effect from a firm’s financial leverage or its CSR disclosure. Additionally, the results do not support the notion that the firm’s financial and social signals moderate the relationship between timing and the stock market response. By combining the work related to M&A performance with signaling theory, this thesis contributes to the strategic management literature and extends the current work on the effectiveness of signals. Furthermore, by adopting a temporal perspective, this thesis contributes to the emerging literature on signaling theory and the temporal dimensions of M&A, and proves that timing decisions within an M&A context are highly relevant.
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