Mergers and acquistion : The effect of announcement date on abmormal return in Asia

Abstract

Merger and acquisition (M&A) is an ideal option to reduce business’s risk of investment, gain stronger market penetration and wealth maximization. In this study, event study was performed to see the effect of abnormal return from M&A on Asian countries, including Indonesia, Thailand, Malaysia, Hong Kong and Singapore with sampling period between 2010 to 2017. From the result of the test, it was found that M&A creates positive value for acquirer firms in Asia. The semi strong form of Efficient Market Hypothesis (EMH) was examined by looking at the leakage of information prior to the announcement and market’s reaction after the announcement. The result suggested Indonesia to be the least efficient market follows by Malaysia. Cross-sectional regression was attempted to find the relationship between abnormal return and institutional variables, including share traded velocity, market capitalization ratio and FDI. The results were insignificant however the institutional variables assist with reducing abnormal return. Firm performance ratios and deal characteristics were also regressed against the abnormal return for pre- and post- announcement. Regulations on M&A and penalty on insider trading in different countries were compared and analyzed to identify possible improvements that can be applied by regulators to promote more efficient market.