Similarity in Q ratio and M&A performance

Abstract

The details and motives of global merger and acquisition (M&A) activity has been widely examined. This paper contributes to the literature by examining the influence of similarity in Tobin’s Q ratio on M&A performance. Prior studies mainly examined United States merger activity in the twentieth century, this study focusses on European acquiring firms for the years 2008 until 2018. 739 M&A deals are examined based on over 20 different European countries. Tobin’s Q ratio is measured as a dummy variable and as the absolute difference between two firms in Tobin’s Q. M&A performance is measured using an event study with a small event window around the M&A announcement date. Furthermore, an additional analysis is done to measure the industry effect on M&A performance where the sample is divided for inter- and intra-industry trade. The results indicate a negative relation between Q dispersion and acquiring returns for both the measurements of Tobin’s Q. For the target firms, a positive relation between the Q dummy measurement and the target firm returns was found, but a significant negative relation for the Q difference approach. Keywords: Mergers and acquisitions (M&A), Tobin’s Q, event study, inter- and intra-industry trade