Market efficiency and cumulative abnormal returns in M&A

Abstract

This study examines the relationship between market efficiency and cumulative abnormal returns around announcement dates of M&A deals. Previous research in M&A found many determinants of M&A success, however the relation with market efficiency has never been researched. This study obtains M&A data of six analyzed markets covering a period from 2002 to 2020. An event study is conducted to calculate the cumulative abnormal returns for 11,123 M&A deals. To determine the value for market efficiency, the model of Delgado-Bonal (2019) is used. Fixed effects regressions and quantile regressions are applied to test the relationship. The results show a significant negative effect between market efficiency and cumulative abnormal returns during the [1, 5] event window. This implies that more efficient market result in lower cumulative abnormal returns after the announcement date of an M&A deal. However, the quantile regressions show significant positive effects for the event windows [-5, 5] and [1, 5].