Merger and acquisition announcements and their effect on returns to shareholders of bidding firms and target firms: Empirical evidence from Malaysia

This study investigates the impact of announcements of mergers and acquisitions (M&As)
on stock prices of bidding firms and target firms in Malaysia. Using an event-study
methodology to examine the market reaction to the announcements, 59 target firs and 26 bidding firms during the period from 1 January 2011 to 30 June 2015 have been identified. In addition, the acquirer’s status is taken into account in this study to examine their impact
on abnormal returns (ARs). The data on M&As’ is obtained from Thomson SDC Platinum Merger and Acquisition Database and also from Bursa Malaysia website. The ARs are derived by using two models, namely the market model (MM) and market adjustment returns (MARs) model. FTSE Bursa Malaysia Kuala Lumpur Composite Index
(FBMKLCI) and FTSE Bursa Malaysia EMAS Index (FBMEMAS) are used as the benchmarks. The findings indicate target firms gain significantly on the announcement day (+3.5%). The multi-day windows around the announcement day also show positive cumulative average abnormal returns (CAARs) for the two models and the two benchmarks. +15.83% is reported in the longer window (-20 to +20) and +8.92% in the 3-
day window. For bidding firms, no evidence of value creation is observed