【IMI Working Paper No. 1706 [EN]】Indexing Mergers and Acquisitions
This paper introduces an index to measure the efficiency of mergers and acquisitions. The Merger and Acquisition Index is able to evaluate and forecast merger outcomes for acquiring firms. It is calculated for each takeover deal based on the stochastic frontier analysis. The value of the M&A index is standardized between 0 and 1, and a deal with a higher index encompasses higher efficiency. Empirical results suggest takeover bids with higher M&A indices are more likely to succeed. Moreover, M&A index shows strong and positive relation with acquirers’ short-run stock performance and long-run operating performance. After constructing three portfolios under a buy-and-hold strategy, efficient portfolios with the highest indices earn higher equity returns and monthly alphas than inefficient portfolios with the lowest indices.
Mergers and Acquisitions; Stochastic Frontier Analysis (SFA); Efficiency
Gang Jianhua, IMI Research Fellow, School of Finance, Renmin University of China.
Guo Jie and Li Xi, Durham Business School, Durham University.