Original Research

Merger announcements and share price return: The role of the relationship between acquiring and target firms

R. C. Van Den Honert, G. D.I. Barr, J. F. Affleck-Graves, G. Smale
South African Journal of Business Management | Vol 19, No 1 | a964 | DOI: https://doi.org/10.4102/sajbm.v19i1.964 | © 2018 R. C. Van Den Honert, G. D.I. Barr, J. F. Affleck-Graves, G. Smale | This work is licensed under CC Attribution 4.0
Submitted: 19 October 2018 | Published: 31 March 1988

About the author(s)

R. C. Van Den Honert, Department of Mathematical Statistics, University of Cape Town, South Africa
G. D.I. Barr, Department of Mathematical Statistics, University of Cape Town, South Africa
J. F. Affleck-Graves, Graduate School of Business, University of Cape Town, South Africa
G. Smale, Graduate School of Business, University of Cape Town, South Africa

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Abstract

The authors examine, in a cumulative average abnormal return (CAAR) framework, the effect of four easily identifiable features of merger activity on acquirer/target shareholder wealth. The features considered are the relatedness of the acquiring and target firms involved in the merger, the relative sizes of the acquirer and target, the prior control position, and the medium of exchange. The results indicate that the relatedness of the acquirer and target firm and the prior control position are strong factors in determining the distribution of any wealth effects between the shareholders of the target and acquiring firms. The size and the medium of exchange are shown to be weaker factors in determining the distribution of wealth. In all cases it is seen that the shareholders of acquiring firms do not tend to benefit in the short term from the merger while those of the target firms show significant gains.

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Crossref Citations

1. Abnormal returns for cash vs share funded acquisitions
TB Mushidzhi, M Ward
Investment Analysts Journal  vol: 33  issue: 60  first page: 17  year: 2004  
doi: 10.1080/10293523.2004.11082460