Short-Term Performance, Industry Effects, and Motives: Evidence from Large M&As

We investigate the short-term market response associated with the announcement of large domestic mergers and acquisitions (M&As) involving public U.S. firms with public targets from 1989 to 2003. We partition the results by industry type, identify the underlying motives for acquiring firms engaging in M&As, and examine potential determinants of abnormal performance. Overall, abnormal returns are significantly negative for acquirers but significantly positive for targets. The wealth effects to acquirers range from significantly positive to significantly negative depending on the industry. Targets earn positive short-run abnormal returns across industries. We find that synergy is the main motive for M&As, but some support exists for hubris. Determinants of acquirers ' returns include the level of financial slack, P/E, relative industry P/E, and being in a heavily regulated industry. For targets, variables influencing their abnormal returns include relative size and whether they are in an industry related to the acquirer.