Wealth Effects of Takeovers in Merger Activity Eras: Empirical Evidence from the UK

Abstract

Existing studies on the assessment of shareholders' gains in takeovers have not taken the characteristics of the prevailing economic activity period into consideration. This study investigates the wealth effects to shareholders in the event of a merger and acquisition transaction by analysing 124 cases in the UK. The paper differs from previous studies in that it examines the abnormal returns found in two different economic periods. These include a boom period, characterised by high merger activity era (HMAE) and a trough period, characterised by low merger activity era (LMAE). The sample firms were categorised into friendly mergers and hostile takeovers— both successful and unsuccessful. The empirical findings derived from this work revealed that upon the differentiation of the two periods, the wealth effects to shareholders in the different transactions is related to the prevailing performance of the economy.

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