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Market Misreaction? Leverage and Mergers and Acquisitions
| Content Provider | MDPI |
|---|---|
| Author | Krishnan, C. N. V. Yakimenko, Vasiliy |
| Copyright Year | 2022 |
| Description | Using a large database of U.S. mergers and acquisitions (M&As) announced from 2010 through 2017, we examine the effects of capital ratio (leverage) on the announcement period stock price reaction as well as on longer-term stock returns and performance, for banks, making comparisons with non-banks. We compare announcement period reactions (computed in different ways) for lower (lower than sample median) capitalized banks and non-banks with that for higher capitalized banks and non-banks. We confirm our results using multivariate analyses—after controlling for year and industry fixed effects—and we check the associations of capital ratio with announcement period abnormal returns, longer-term performance, as well as certain bank-specific and non-bank specific performance measures. For banks, we find that a lower capital ratio of acquirers at the time of the announcement of the M&A is significantly associated with negative announcement period abnormal returns. However, for these banks, the longer-run abnormal returns and performance are positive. The opposite is true for non-bank M&A announcements: higher equity ratios (lower leverage) of acquirers as at the time of the announcement is significantly associated with negative announcement period abnormal returns. Yet, for such non-banks, the longer-run abnormal returns and performance are positive. This shows that the market may misreact, on average, to both bank and non-bank M&A announcements based on the acquirer’s leverage at the time of the announcement. |
| Starting Page | 144 |
| e-ISSN | 19118074 |
| DOI | 10.3390/jrfm15030144 |
| Journal | Journal of Risk and Financial Management |
| Issue Number | 3 |
| Volume Number | 15 |
| Language | English |
| Publisher | MDPI |
| Publisher Date | 2022-03-18 |
| Access Restriction | Open |
| Subject Keyword | Journal of Risk and Financial Management Mathematical Social Sciences Mergers and Acquisitions M&a Acquirer Leverage Capital Ratio Equity Ratio Bank M&as Non-bank M&as Announcement Period Returns Post-announcement Returns Post M&a Performance |
| Content Type | Text |
| Resource Type | Article |
