An Event Study Approach: Do European Cross-Border and Domestic Bidding Firms Perform Differently?


Event study methodology tests the impact of a corporate event on shareholder wealth of a certain company. In this research, I used the event study methodology to investigate the effect of merger and acquisition announcements on stock returns of acquiring companies located in Continental Europe and the United Kingdom. Event study methodology assumes that the effect of an event (in my research, the release of new information announcing a merger or acquisition) will immediately be reflected in stock prices. The degree to which the new information affects markets is measured with abnormal returns. To measure the short-term market reaction to the European mergers and acquisitions, I computed the announcement effects (abnormal returns) for a sample of 2,823 European domestic and cross-border acquisitions. To address the question of whether European bidders perform differently, I compared these effects across the samples of domestic and cross-border acquisitions as well as the samples of Continental Europe and the United Kingdom/Ireland. The application of event study methodology was related to several challenges such as data collection, the use of appropriate proxies and control variables, the choice of appropriate validity tests, and time periods. In order for a researcher to cope with them, a deep knowledge and understanding of the limitations of the research method (in this case, the event study) should be developed.

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