The Impact of Mergers and Acquisitions Announcement on Share Prices: Evidence from Malaysia

Abstract

Given the growing importance of mergers and acquisitions activities to business development, it is important to study the impact of mergers and acquisitions on share prices in Malaysian market. This study aims to investigate the impact of mergers and acquisitions on share prices in Malaysian market and address various important research questions from the acquirers' perspective. First, I examine the impact from the whole companies' perspectives. Second, I segregate the whole companies sample based on the news type based on MacKinlay (1997). To the best of my knowledge, there is no research has been conducted to examine the impact of mergers and acquisitions based on news type in Malaysia. To fill the gap, this dissertation studies the Malaysian market reaction on the mergers and acquisitions announcement from four perspectives which is whole companies and three news type (good news, no news and bad news). A total of 112 mergers and acquisitions events were reported from January 2011 until December 2012 and were included in this study. The whole sample then follows the procedures in MacKinlay (1997) of dividing sample into three group of news type: good news, no news and bad news. Ultimately, 37 events are fall under good news, 5 events are under no news and 69 events are under bad news. The Market Model Event Study methodology has been used to compare the firm's returns to the market return (FTSE Kuala Lumpur Stock Exchange). The empirical evidence of this study found no significant abnormal returns when analyzing all companies' level. However, the evidence reveals that when study based on the news type it carries an informational content whereby good news companies react positively to the announcement while bad news act oppositely. Besides, empirical result shows a significant difference found in returns generated from good news and bad news companies. In addition, there is no significant difference found when examine the returns of acquirers based on target companies listing status.