Mergers and Acquisitions: Implications for Acquirers’ Market Risk

Sailesh Tanna, Ibrahim Yousef

Research output: Contribution to journalArticle

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Abstract

Purpose: The purpose of this paper is to investigate the impact of mergers and acquisitions (M&As) on acquiring company systematic risk using a global sample of 34,221 completed deals that occurred between the years 1977 and 2012, covering 163 countries and 85 industries. Design/methodology/approach: Acquirers’ systematic risk (beta) is calculated using the capital asset pricing model. The change in acquirers’ beta post-merger is obtained using event study and tested for mean differences across various sub-categories of deals. Cross-sectional regressions are then performed to test several hypotheses relating to the impact of diversification, method of payment, target status and prior experience on acquirers’ risk. Findings: For the overall sample, the evidence suggests that acquirers’ beta tends to increase post-merger, but only in cases where their pre-merger risk is relatively low in relation to the risk of the market. The authors also show that cash payment deals for publicly listed targets contribute to reducing acquirers’ risk while stock payment increase risk. Diversification, whether global or across industry, has no significant impact on risk. On the other hand, for serial acquirers, the risk is increased significantly with more M&As. Originality/value: This study contributes in a unique way by providing global evidence on acquirers’ systematic risk using a very large and diverse sample of M&A deals and investigating not only the impact of diversification on risk but also of other deal characteristics (e.g. method of payment, target status, acquirers’ prior experience) which have not been previously examined.

Original languageEnglish
Pages (from-to)545-562
Number of pages18
JournalManagerial Finance
Volume45
Issue number4
DOIs
Publication statusPublished - 8 Apr 2019

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Mergers and acquisitions
Market risk
Mergers
Systematic risk
Diversification
Industry
Method of payment
Payment
Design methodology
Capital asset pricing model
Serials
Cash
Cross-sectional regression
Event study
Hypothesis test

Keywords

  • Acquirers’ beta
  • CAPM
  • Mergers and acquisitions
  • Risk regressions
  • Systematic risk

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

Mergers and Acquisitions : Implications for Acquirers’ Market Risk. / Tanna, Sailesh; Yousef, Ibrahim.

In: Managerial Finance, Vol. 45, No. 4, 08.04.2019, p. 545-562.

Research output: Contribution to journalArticle

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