Market misreaction? Leverage and mergers and acquisitions

Artikel

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Journal of Risk and Financial Management ; ISSN: 1911-8074 ; Volume: 15 ; Year: 2022 ; Issue: 3 ; Pages: 1-21 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
• Subject: 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

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Krishnan, C. N. V. ; Yakimenko, Vasiliy
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2022

Further information

• DOI: doi:10.3390/jrfm15030144
• Handle: http://hdl.handle.net/10419/258867
• Last update: 10.03.2025, 11:44 AM CET