Σάββατο 25 Απριλίου 2020

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 Abstract
This study investigates how mergers and acquisitions (M&A) affect the wealth of shareholders of public firms in the United States (U.S). More specifically, it investigates whether the nature of the bid, the payment method used, and the type of M&A have implications for shareholders of U.S bidding firms. The study analyses 352 mergers and  acquisitions  in  the  U.S  during  the  period  1999-2008,  and  its  results  indicate  that  bidding  firms  suffer significant negative buy-and-hold abnormal returns in the three years period after a M&A announcement. The results also suggest that, in the long-run, hostile bids and cash-financed bidders outperform friendly bids and stock-funded bidders, respectively. Furthermore, the study also finds that in the long-run bidder firms that focus on industry specialisation within their M&A targets significantly outperform firms that adopt a more diversified strategy. The analysis also investigates the effects of M&A specialisation/diversification in six different sectors, and finds that specialised bidders outperform diversified bidders in four sectors: consumer & basic materials, energy & utilities, communications and technology. Furthermore, bidder firms in the financial services sector perform significantly better when diversifying into other sectors, while the performance of bidder firms in the industrial sector appears unaffected by the degree of M&A specialisation or diversification.


Keywords: mergers and acquisitions, abnormal return, long-run performance 

1. Introduction 
The number of mergers and acquisitions (M&As) has increased significantly in the past century, as has the size of the deals and geographical representation of the firms involved (Martynova & Renneboog, 2008). With each M&A, a key concern for both bidder and target shareholders is return on investment and the manner in which the merger or acquisition affects share prices in both in the short and long term. Prior studies indicate that M&As 
typically create short-run value for the shareholders of the target entity (Martynova & Renneboog, 2008; Rau & Vermaelen, 1998) and may also create value for bidder shareholders in the same time frame (Eckbo, 1983; Eckbo &  Langohr,  1989).  There  are,  however,  limited  studies  on  the  long-run  effects  of  M&As  on  shareholder 
performance, and these offer inconclusive findings about the impact on performance. Agrawal et al. (1992) and 
Loughran and Vijh (1997) found that shareholders of bidding firms experienced significant losses of 25% and 10% 
respectively  over  a  5  year  post-M&A  period.  Similarly,  Rau  and  Vermaelen  (1998)  found  significant 
underperformance for bidders in a study of M&As on the New York Stock Exchange (NYSE), American Stock 
Exchange  (AMEX),  and  National  Association  of  Securities  Dealers  Automated  Quotations  Stock  Market 
(NASDAQ). However, the same study revealed significant over-performance for bidders in tender offers. Dutta 
and Jog (2009) found neither positive nor negative cumulative average abnormal returns for 1,300 M&As in 
Canada during the period 1993-2002. Overall, prior studies provide mixed results about the long-run effects of 
M&As on shareholder performance, and as a result, this area requires further research.   
1.1 Aims and Objectives of the Study 
The main aim of this study is to evaluate the long-run performance of U.S M&As and to ascertain whether this 
type of activity increases shareholder value of bidding firms. This study also aims to investigate whether the 
long-run  performance  of  bidding  firms  is  affected  by  the  nature  of  the  bid  (i.e.  friendly  or  hostile)  and  the 
method of payment (i.e. cash or stock) used. In addition, this study explores whether a bidding firm’s focus on 
industry specialisation or diversification within its M&A strategy impacts its long-run performance. 
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1.2 Contribution 
Firstly, this study investigates the relationship between M&As and the long-run performance of bidding firms by 
applying the Fama-French 3 factor model on expected returns. Secondly, prior studies have failed to provide 
conclusive evidence on how different M&A factors affect the long-term value of bidder firms. This study add to 
the  literature  by  evaluating  further  the  effects  of  bid  type,  the  method  of  payment  and  the  M&A  type,  on 
shareholder value of bidding firms. Thirdly, this study provides additional industry specific analysis about the 
effects of the M&A type (specialisation or diversification) on the long term performance of bidder firms. Finally, 
this study uses a sample of U.S firms for the period 1999–2008, on which little research has been published.   
The  remainder  of  this  paper  is  structured  into  four  sections.  Section  two  provides  a  review  of  the  existing 
literature on how M&As affect shareholder value in the long term. Section three describes the methods used to 
investigate the research questions and explains the data collection process, and Section four provides an analysis 
of the findings. Finally, Section 5 summarises the main findings, discusses this study's research limitations and 
offers recommendations for further research. 
2. Literature Review 
A successful M&A results in significant benefits for a firm’s stakeholders such as the shareholders, lenders and 
management. The success of an M&A is usually gauged by the growth of sales, profitability and market return in 
the long run. This is mainly attributed to the gains in efficiency and cost reduction. The BP and Amoco merger of 
1998 best exemplifies this as they witnessed a profit increase of 50% in the first two years of their merger. On 
the other hand, because of the amount of investment required for a M&A, its failure could lead to heavy losses. 
For example, the acquisition of Time Warner Corporation by America Online in 2000 cost $165 billion; Time 
Warner Corporation generated profits exceeding $46 billion. However, two years after the acquisition, they were 
facing losses of over $60 billion (Sudarsanam, 2003). 
2.1 Impact of M&As on Bidder Firms’ Long Run Performance 
Agrawal, Jaffe and Mandelker (1992) examined the post-merger performance of bidder firms on the NYSE over 
the period 1955-1987. They found that over a five year period after the M&A, stockholders of the bidder firm 
suffered a statistically significant loss of about 10%. Loderer and Martin (1992) carried out a study on 1298 
M&As in NYSE and AMEX during 1966-1986 period. They found that bidder firms outperformed the control 
portfolio during a five year period but underperformed the control portfolio over a three year period. Rau and 
Vermaelen (1998) investigated the long run underperformance of bidder firms by studying 3,517 mergers and 
tender offers between companies listed on the NYSE, NASDAQ and AMEX. In the three year period after the 
mergers, bidders underperformed while the bidders in the tender offers over-performed. A major cause for this 
post-merger  or  acquisition  underperformance  was  the  poor  performance  by  “glamour  firms”  with  low 
book-to-market ratios. 
In  order  to  investigate  whether  international  diversification  maybe  the  reason  for  bidders’  shareholder  value 
decline  in  the  long  term,  Dos  Santos,  Errunza  and  Miller  (2008)  investigated  a  sample  of  136  cross-border 
M&As  involving  U.S  bidder  firms  and  foreign  target  firms  over  the  period  1990–1999.  They  found  that 
international  diversification  did  not  significantly  destroy  value  in  the  long  term,  whereas  industrial 
diversification lead to loss of value even after the pre-acquisition value of the targets was controlled for.   
A number of studies investigate the impact of M&As on firms’ long run performance, outside the US. Using 
more than 1,900 cases of Canadian M&As, Eckbo (1986) investigated the link between corporate control and 
M&As.  In  contrast  to  the  U.S  studies,  he  found  that  bidder  firms  made  significant  gains  in  the  long  run 
post-M&A. He also found that during the four year window after the M&A there was no significant difference in 
performance between the firms involved in horizontal and vertical M&As. On the other hand the geographical 
location of bidder firms appeared to have an influence on their performance. Dutta and Jog (2009) used both 
event  time  and  calendar  time  approaches  to  investigate  the  long-term  stock  return  performance  of  Canadian 
bidder firms using 1,300 M&As over the period 1993-2002. Similarly this study, in contrast to the U.S studies, 
failed to find negative long-term abnormal stock market returns.   
2.2 Reasons for Negative Long Term Performance after Mergers and Acquisitions 
Prior studies provide some, albeit inconclusive, evidence about the positive abnormal returns enjoyed by bidder 
firms in the short-run post M&A period (Langetieg, 1978; Eckbo, 1983; Eckbo & Langohr, 1989; Agrawal et al., 
1992;  Loughran  &  Vijh,  1997;  Rau  &  Vermaelen,  1998;  Martynova  &  Renneboog,  2008,  among  others). 
However, studies about the long-term effects of M&As on the shareholder returns of bidding firms suggest that 
the majority of M&As generate negative abnormal returns (Agrawal et al., 1992; Sudarsanam & Mahate, 2003; 
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Loughran & Vijh, 1997, among others). This raises the question as to why firms earn negative abnormal returns 
in the long-run after having earned positive abnormal returns in the short run (Loderer & Martin, 1992; Dutta & 
Jog,  2009).  Rau  and  Vermaelen  (1998)  suggest  that  the  performance  extrapolation  hypothesis  is  one  of  the 
reasons  for  the  negative  abnormal  returns  in  the  long  run.  According  to  the  extrapolation  hypothesis  when 
markets are assessing the value of an M&A, they extrapolate the past performance of bidders. After the M&A, as 
its results become apparent, the markets reassess the quality of the bidder. As a result, Rau and Vermaelen (1997) 
argue  that  bidder  firms  earn  abnormal  returns  in  the  short  run  because  the  market  reacts  to  the  M&A 
enthusiastically,  and  expects  the  bidder  to  emulate  past  successes.  However  as  time  goes  on,  bidder  firms 
experience a decrease in returns as their performance is reassessed, and they are rewarded according to current 
performance. Consequently, this leads to our first hypothesis: 
Hypothesis 1: In the long term (three year) period after the M&A, the return performance of a bidding firm is 
worse to that achieved by firms of similar size and book-to-market ratio. 
2.3 Factors Affecting Shareholder Returns at Bidder Firms   
The literature suggests that shareholder return after M&As is influenced by the method of payment used (cash or 
equity), the nature of the bid (friendly or hostile) and the type of merger (specialisation or diversification).   
2.3.1 Nature of the Bid–Friendly vs. Hostile 
The nature of the bid is a factor that may affect bidder shareholders’ wealth. Cosh and Guest (2001), among 
others, analysed  the effect of the nature of takeover bids on the long term performance of bidder firms (and 
targets), on a sample of UK firms over a one year period in 1986. They found that hostile bidders earn positive 
returns in the long-run after an M&A, while friendly bids resulted in negative long-run returns. Hostile bidders 
are willing to pay high premiums as compensation to the target shareholders because the target firm may have 
many attractive features, and the bidders are able to earn positive abnormal returns from these in the long-run. In 
contrast, bidder firms in friendly bids are unable to earn positive abnormal returns in the long-run, as the target 
firms have fewer attractive features (Dube, Glascock and Romero, 2007). This leads to our second hypothesis: 
Hypothesis 2: In the long term (three year) period after the M&A, the abnormal return performance of a bidding 
firm in a hostile bid is greater to that achieved by bidders in friendly M&As. 
2.3.2 Method of Payment Used–Cash vs. Stock 
The method of payment is an important element of M&As because it significantly impacts the returns of both the 
target and bidding firms. As the management of the bidding firm should wish to use the cheapest payment option, 
the method of payment used provides a signal to the market about information the bidders’ management has 
about the valuation of their firm. Rau and Vermaelen (1998) called this the payment hypothesis phenomenon. 
For example, the management of the bidder firm may opt to finance a M&A with shares as long as the firm’s 
shares are overpriced by the market, otherwise the preferred method of financing a M&A would be cash. When a 
firm uses its overpriced shares to acquire the target, its shares will be discounted with a discount rate that arises 
from the difference between its actual share value and the prevailing share market price. Thus the bidder firm 
may generate negative abnormal returns in the short run. The management of the bidding firm may prefer to use 
cash  to  finance  a  M&A  when  their  firm’s  shares  are  under-priced  by  the  market.  This  may  result  positive 
abnormal returns in the short run for the bidder firm. When the information asymmetry between the managers 
and the market is eliminated in the long run, the firm’s share price would be readjusted by the market and the 
bidder firm may generate abnormal returns in the long run. 
Research has been done in this area with the aim of assessing the nature of the relationship between the method 
of payment and post M&A returns to bidder firm shareholders. In a study of 947 acquisitions during the period 
1970-1989, Loughran and Vijh (1997) investigated this relationship. They found that during the five year period 
after  the  acquisition,  firms  that  completed  stock  mergers  on  average  earned  negative  excess  returns  of  -25% 
whilst  those  firms  that  completed  cash  tender  offers  earned  on  average  positive  excess  returns  of  61.7%. 
Sudarsanam and Mahate (2003) found similar results over a different time period, for different sample size and 
in a different country. In particular, using 519 UK M&As during 1983-1995, they found that during a three year 
window after the M&A announcement, bidding firms on average earned negative buy and hold abnormal returns 
of -8.7%. They also found that bidders that used equity earned substantial negative returns and were significantly 
outperformed  by  the  bidder  firms  that  used  cash  as  their  method  of  payment.    Given  the  above,  our  third 
hypothesis is the following: 
Hypothesis 3: In the long term (three year) period after the M&A, the abnormal return performance of a bidding 
firm that used cash is greater to that achieved by bidders that used equity to finance M&As. 
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2.3.3 The type of Merger-Specialization vs. Diversification   
While diversification does provide advantages to the bidding firm, such as diversification of risk and economies 
of scope, several studies have found that it actually destroys firm value (Lamonta & Polk, 2002; Dos Santos et 
al., 2008). These studies suggest that the loss of value after diversification is due to inefficiency. They suggest 
that firms invest inefficiently as a result of diversification, as they fail to invest resources in segments that are 
specialised and well established. Rather, they invest in areas outside their expertise and as a result they may be 
less efficient in the new field of operation. This implies that diversity in investment destroys corporate value, as 
funds  are  transferred  from    segments  of  speciality  that  provide  high  returns,  to  segments  (new  areas)  that 
provide lower returns. This argument implies that when comparing the post-M&A performance of two firms of 
the same size, the firm that specialises (the firm that focuses on its areas of speciality) may perform better than 
the firm that diversifies. Though this argument is compelling, academic literature is not conclusive about which 
type of M&A yields greater returns for bidder firms (Eckbo, 1986). Consequently, our fourth hypothesis is the 
following: 
Hypothesis 4: In the long term (three year) period after the M&A, the abnormal return performance of a bidding 
firm that specialized in M&As in their industry is greater to that achieved by bidders’ that diversified out of their 
industry. 
In  summary,  since  the  evidence  from  the  academic  literature  is  inconclusive  about  the  exact  effects  of  the 
aforementioned factors on the long run performance of bidder firms, post M&A, this study aims to shed more 
light into these relationships. 
3. Data and Methodology 
3.1 Data Selection Process 
The sample for this study includes all publically listed bidding firms that completed M&As with other public 
companies on all U.S stock exchanges during the period 01/01/1999-01/01/2009. This data was obtained from 
the  Bloomberg  database  which  provides  a  database  of  over  11,000  M&As  completed  in  the  U.S  during  that 
period. The specific deals analysed were either friendly or hostile in nature, and were financed by cash or stock. 
In addition, bidder firms were included in the sample only if data was provided about: 
•  The exact type of the M&A (specialisation or diversification). 
•  The specific industry of both bidder and target firms involved in the M&A (these data are used as the basis 
for grouping the data by industry). 
•  All  share  prices  of  the  bidder  firms  for  three  years  post  the  M&A  announcement  date  at  consecutive 
monthly intervals. These data are used in the calculation of the buy and hold abnormal returns (BHAR). 
•  The end-of-year market capitalisation for the bidder firms for the year of the M&A and for the following 
three years. These data are used to determine the size of the bidder firm, a prerequisite to calculate Fama-French 
(1993) firms’ expected return. 
•  The end-of-year book-to-market ratio for the bidder firms for the year of the M&A and for the following 
three years. These data are used to determine the bidder firms’ risk profile/riskiness, a prerequisite to calculate 
the Fama-French (1993) expected return for a firm.   
After using the above selection criteria, the final sample size included 352 U.S M&As completed during the 
period 1999-2008.   
3.2 Chosen Methodology 
This study adopts the event study methodology as M&As are event affairs. Beitel et al. (2004) and Floegel et al. 
(2005, p. 25) suggest that “given an efficient market, the impact of an event is reflected immediately in a firm’s 
stock price”. The methodology employed is similar to that employed in similar studies such as Ikenberry et al. 
(1995) and Rau and Vermaelen (1998). 
3.2.1 Event Study Horizon and the Identification of the Event Days 
An event study focuses on the event period (window) as this forms the basis of the analysis. In this study, the 
event period is the three years after the announcement of an M&A. It includes all information pertaining to the 
value of the bidder firms on the announcement date and the following thirty-six months. No information before 
the announcement date is collected because the effects of M&As on long-term returns are less sensitive to this 
type of information. In a short-run study, there is a need to collect information about the returns of the firms 
before the announcement date, either due to information leakage about the deal to the market, causing either 
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positive or negative share prices movements, or because there is a possibility that the announcement dates were 
inaccurately recorded (Kuwad, 2010).   
The announcement date of the M&A is classified as the event date 0 and is referred to as time T 0 . The event 
study horizon of this study starts from the announcement date of the M&A and extends to 36 months after the 
event i.e. T 0  to T 36 . The 36 month period data after the announcement date are used to determine the long term 
bidder return performance post the M&A. 
To fully investigate the long term effects of M&As on the returns of bidder firm shareholders, three long term 
event windows are investigated. These windows are the 0-12 month (1 year) period, 0-24 month (2 year) period 
and  the  0  –  36  month  (3  year)  periods.  These  windows  are  used  to  assess  the  market  reaction  to  the  M&A 
through the use of the buy and hold abnormal returns (BHAR) of the bidder firms. 
3.2.2 Estimation of the Abnormal Returns during the Event Horizon 
To determine the abnormal returns for sample firms over the event horizon, the abnormal return for each bidder 
firm is first determined for every month in the event horizon using the formula below: 
AR it  = R it  – E(R it )                                                                    (1) 
Where: AR it  is the abnormal return of firm i in month t. 
R it  is the actual return of firm i in month t. 
E(R it ) is the expected return of firm i in month t. 
To calculate the expected return E(R it ) for firm i in month t, U.S firms are ranked according to size and then they 
are divided into quintiles (five equal sets). Each of these quintiles forms portfolios which are further ranked into 
quintiles according to the book-to-market ratios of the firms. This forms 25 (5x5) portfolios with different ranges 
for  size  and  book-to-market  ratio.  This  process  is  repeated  at  the  end  of  every  month  from  January  1999  to 
December  2009.  The  average  return  for  each  of  these  portfolios  for  a  specific  month  t  is  considered  as  the 
expected return for any of the sampled firms that happen to fall in the same size and book-to-market category, at 
the same month t. French (2012) has calculated and compiled these expected returns in his Data Library. For the 
purposes of this study expected returns have been collected from French-Data Library. 
Having obtained the abnormal returns for each i bidder firm in each month t, the average abnormal returns for all 
sample firms for each month t within the event horizon are provided using the formula below: 
n
AR
AAR
N
1 i
it
t

=
=                                                                       (2) 
Where: AAR t  is the average abnormal return for all sample firms at month t. 
AR it  is the abnormal return of firm i in month t. 
n is the number of sampled bidder firms. 
Finally, the abnormal returns for the sample firms over the event horizon are determined using the Buy and Hold 
Abnormal  Returns  (BHAR)  shown  below.  The  BHAR  represents  by  how  much  the  sampled  firms  have 
underperformed  or  outperformed  the  market  return  expectations  in  the  respective  periods.  The  market  return 
expectations  were  obtained  from  the  control  portfolios  of  the  listed  US  firms  with  similar  size  and 
book-to-market ratios. The BHAR formula is provided below: 
( ) 1 1
2
1
− + Π =
=
t
T
T t
AAR
2 1 T, T BHAR
                                      (3)   
Where: BHAR T1, T2  is the Buy and Hold Abnormal Return for all sample firms over the period T 1  to T 2 . 
AAR t  is the average abnormal return for all sample firms at month t.   
T 1,  T 2  is the time period from month T 1  to month T 2 . 

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3.2.3 Test to Determine Significance of BHAR 
The significance of the BHAR results obtained from formula (3) is determined using the t-test statistic. This is 
necessary to determine whether the long run abnormal return figures calculated for the bidder firms post-M&A, 
are statistically significant. 
To  calculate  the  t-statistic  for  the  BHAR,  we  use  the  one-sample  t-test  formula,  which  is  provided  below 
(Berenson et al., 2012):   
n
S
X μ
− =     STAT t
                                                    (4) 
Where:  X   is the sample’s BHAR T1,T2 . 
μ
  is the population mean. 
S   is the sample’s standard deviation. 
n is the number of bidder firms in the sample. 
To calculate the t-statistic for the BHAR difference that is obtained from two sub-samples, the two-sample t-test 
formula is applied, which is provided below (Berenson et al. (2012)): 








+
− − − =
2 1
2
1 1
) ( ) (
t
2
1 2 1
n n
S
X X
p
μ μ
  stat 
                                                (5) 
Where: 
1 X   and   
2 X   are the BHAR of sub-sample 1 and 2, respectively. 
1
μ
  and  2
μ
  are the population means of populations 1 and 2, respectively. 
1 n   and  2 n   are the number of firms in sub-samples 1 and 2, respectively. 
2
P S   is the pooled variance of the two sub-samples, its formula is provided below: 
) 1 ( ) 1 (
) 1 ( ) 1 (
2 1
2 1
2
2
2
1 2
− + −
− + −
=n n
S n S n
S
P
                                                        (6) 
Where:  2
1
S   and  2
2
S   are the standard deviations of sub-samples 1 and 2 respectively. 
4. Findings and Results 
This section discusses the findings of the bidder post M&A return performance. More specifically it provides the 
findings of the effects of the nature of the bid (friendly or hostile) and the method of payment (cash or stock) on 
bidders’  performance.  It  also  discusses  the  effects  of  the  M&A  type  (industry  specialisation  or  industry 
diversification) on bidders’ performance, across different bidder industries. 
4.1 BHAR of Bidder Firms in the Post M&A Period 
Table 1 reports the results of the analysis of the buy and hold abnormal returns (BHAR) of the bidder firms post 
the  M&As.  In  particular  Table  1  presents  the  BHAR  of  3  post  event  windows  based  on  the  total  sample 
observations (352 US M&A deals) over the period 1999-2008. 
The results suggest that the sample bidder firms generated a negative BHAR of -1.79% during the 0-12 month 
window, -0.54% during the 0-24 month window and -5.04% over the three years after the M&A annoucement. 
This implies the shareholders of bidder firms suffered significant losses after the M&A announcement in the 
long term. In other words the bidder firms involved in the mergers and acquisitions consistently underperformed 
the control portfolio in the long run. 





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Table 1. Post M&A long-run BHAR for bidder firms 
Time Period 
(Event Window) 
Buy And Hold Abnormal Return 
(n = 352) 
0 - 12 Months  -1.79*** 
0 - 24 Months  -0.54*** 
0 - 36 Months  -5.04*** 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. 

These findings also suggest that the shareholders of bidder firms suffered greater losses as the length of the event 
window increased. Such findings confirm our first hypothesis. In addition these findings are inline to those found 
by Agrawal et al. (1992), Rau and Vermaelen (1998), Loughran and Vijh (1997), and Sudarsanam and Mahate 
(2003), which suggest that shareholders of bidding firms suffer losses in the long-run. While the results of this 
study largely confirm the findings of prior studies, they also call into question the findings of other studies, such 
as Eckbo (1986), who found that bidders in Canadian M&As earned significant positive BHAR in the long-run 
post-M&A period. Additionally, Loderer and Martin (1992) and Dutta and Jog (2009) present different results as 
they did not discover any bidder underperformance in the long-run, post-M&A period. 
4.2 Impact of the Nature of the Bid on Post M&A Long-Term BHAR 
Considering  that  this  study’s  data  includes  different  types  of  bids,  it  is  also  necessary  to  investigate  the 
relationship that exists between the nature of the bids and the share price performance of bidding firms. The 
results of this test are presented in Table 2. 

Table 2. Post M&A long term BHAR for bidder firms and the nature of the bid 
Time Period 
(Event Window) 
Buy And Hold Abnormal Return 
Friendly  Hostile  Difference 
(n = 343)  (n = 9) 
0 - 12 Months  -2.13***  10.96***  -13.09*** 
0 - 24 Months  -0.80***  8.60***  -9.39*** 
0 - 36 Months  -5.67***  20.36***  -26.03*** 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the US firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively.   

The findings show that the bidder firms that participated in friendly bids experienced significant negative BHAR 
in the long term. The bidder firms in friendly bids underperformed the control portfolio by 2.13%, 0.80% and 
5.67% in the 0-12 month, 0-24 month, and 0-36 month periods, respectively. It can also be seen that shareholders 
of  bidder  firms  involved  enjoyed  significant  positive  BHARs.  In  particular  they  earned  10.96%,  8.60%  and 
20.36%  in  the  0-12  month,  0-24  month,  and  0-36  month  periods,  respectively.  These  findings  confirm  the 
findings of Cosh and Guest (2001) who found that hostile takeover bids result in positive long-term abnormal 
returns.   
Furthermore it is investigated whether the differences in the nature of M&A bid generated significant different 
shareholders’  return.    The  results,  presented  in  Table  2,  show  that  for  all  event  periods,  the  firms  that  used 
friendly bids were significantly outperformed by the firms that used hostile bids. In the 0 - 36 months window 
the hostile bidders outperformed the friendly bidders by 26.03%. Such findings confirm our second hypothesis. 
This mirrors the findings of Franks et al. (1991) who found that UK firms using hostile bids outperformed those 
using friendly bids over a three year period after the merger and acquisition. Given their nature and the high 
premiums attached to them, hostile bids are only pursued by firms when both the management and shareholders 
of the bidder firm are confident that the benefits of the M&A will outweigh the costs and add value to the firm. 
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4.3 Impact of Payment Method on Post M&A Long-Run BHAR for Bidder Firms 
The literature suggests that the method of payment used for an M&A may affect the returns achieved by both the 
bidding  and  target  firm.  As  such,  it  is  important  to  investigate  and  analyse  the  impact  of  this  factor  on  the 
abnormal returns of this study’s sample bidder firms. In a bid to accomplish this, the sample’s M&A deals are 
divided into two groups; those deals that used cash as payment method and those that used stock. The results of 
this analysis are presented in table 3 below.   

Table 3. Post M&A long term BHAR for bidder shareholders and the method of payment 
Time Period 
(Event Window) 
Buy And Hold Abnormal Return 
Cash  Stock  Difference 
(n = 214)  (n = 138) 
0 - 12 Months  0.15  -4.89***  5.04*** 
0 - 24 Months  0.55***  -2.47***  3.02*** 
0 - 36 Months  -3.37***  -7.93***  4.57*** 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively.   

It is found that during the 0-24 month period, bidder firms that used cash as payment method earned significant 
BHAR  of  0.55%,  however  over  the  0-36  month  period  the  same  firms  experienced  significant    negative   
BHAR of -3.37%.    However, looking at the performance of the bidder firms that used stocks to pay for their 
M&As, it is apparent that these firms experienced significant negative BHAR for all event windows investigated; 
-4.89%, -2.47% and -7.93% during the 0-12 month, 0-24 month and 0-36 month periods, respectively.   
When comparing the long-run performance of bidder firms that used cash and those that used stock to finance 
their M&A it appears that the cash bidders significantly outperformed the stock bidders during all event windows. 
Over  the  3  year  period  following  the  announcement  of  the  merger  and  acquisition,  the  cash  bidder  firms 
outperformed the stock bidder firms by 4.57%, despite the fact that both groups generated negative BHAR when 
compared to the control portfolio. Again these findings provide evidence in support of our third hypothesis. 
4.4 Impact of M&A Type on Post M&A Long Term BHAR for Bidder Shareholders 
The different types of M&As can be classified by the choice to specialise in a particular industry or to diversify 
out of the said industry. Table 4 shows the results of the analysis of the effects of the M&A type on the BHAR of 
the bidder firms. In particular sample bidders are grouped by the choice to specialise in or diversified out of an 
industry. 

Table 4. Post M&A long run BHAR for bidder firms grouped by M&A type 
Time Period 
(Event Window) 
Buy And Hold Abnormal Return 
Specialization  Diversification  Difference 
(n = 282)  (n = 70) 
0 - 12 Months  -1.23***  -4.14***  2.92*** 
0 - 24 Months  0.03  -3.15***  3.18*** 
0 - 36 Months  -3.83***  -10.14***  6.31*** 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively.   

Table 4 suggests that bidder firms that chose to specialise suffered significant negative BHAR of -1.23% and 
-3.83% in the 0-12 month and the 0-36 month periods, respectively. In other words bidder firms that specialised 
underperform the control portfolio in the long run. Similarly, the bidder firms that chose to diversify suffered 
significant  negative  BHAR  for  all  event  windows  in  this  study.  These  firms  generated  -4.14%,  -3.15%  and 
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-10.14%  BHAR  during  the  0-12  month,  0-24  month  and  0-36  month  periods,  respectively.  These  findings 
suggest  negative  BHAR  for  bidder  firms  in  the  long  run  regardless  of  their  choice  to  either  diversify  out  or 
specialise in an industry.   
The impact of diversification and specialisation is clear, as bidder firms  that specialised earned less negative 
returns than bidders that diversified.    During the 0-12 month, 0-24 month and 0-36 month periods, the firms 
that  specialised  significantly  outperformed  those  that  diversified  by  2.92%,  3.18%  and  6.31%,  respectively. 
These  findings  contradict  the  findings  of  Eckbo  (1986),  who  found  no  significant  performance  difference 
between those firms involved in horizontal mergers (specialisation) rather than vertical mergers (diversification). 
Overall, the evidence provided in Table 4 confirms our fourth hypothesis. 
4.5 Industry Specific Analysis of the Impact of M&A Type 
The first phase of the analysis on the impact of the bidder firms’ choice to specialise or diversify industry did not 
focus on a specific industry. The complex structure of the US economy combined with the existence of unique 
niche markets may result in varied reactions to the M&A type in different industries. This calls for a deeper and 
more specific analysis of the underlying relationships between the choice to specialise or diversify and its impact 
on the returns of the bidder firms, in different industries. As a result, the analysis now focuses on M&A activity 
in  the  following  six  sectors:  financial,  consumer  and  basic  materials,  energy  and  utilities,  industrial, 
communications and technology. 
4.5.1 Impact of M&A Type on Post M&A Long-Run BHAR for Bidder Firms in the Financial Sector 
Table 5 presents the results of the impact of the M&A type on the BHAR of the bidder firms in the financial 
sector over the period 1999-2008. Financial sector investigation shows that firms that chose to specialise into 
financial  sector  suffered  significant  negative  BHAR  of  -4.38%  and  -15.76%  over  the  0-24  month  and  0-36 
month periods, respectively. However, in the 0-12 month period it was observed that bidders earned significant 
positive BHAR of 0.84%.    The bidder firms that chose to diversify showed significant positive BHAR of 8.40% 
and 10.88% during the 0-12 month and 0-24 month periods, respectively. Significant negative BHAR was also 
realised during the 0-36 month period. 

Table 5. Post M&A long-run BHAR for bidder firms in the financial sector grouped by M&A type 
Industry 
Time  Period  (Event 
Window) 
Buy And Hold Abnormal Return 
Specialization  Diversification  Difference 
Financial   
Sector 
0 - 12 Months  0.84***  8.40***  -7.57*** 
0 - 24 Months  -4.38***  10.88***  -15.26*** 
(n s  = 86) 
0 - 36 Months  -15.76***  -3.20***  -12.56*** 
(n d  = 14) 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d    is the number of firms that specialized/diversified in the financial sector. 

Contrary  to  what  was  observed  in  the  entire  US  economy,  as  shown  in  Table  4,  bidder  firms  that  chose  to 
diversify out of the financial industry outperformed those that chose to specialise in the financial industry by 
7.57%, 15.26% and 12.56% over the 0-12 month, 0-24 month and 0-36 month periods, respectively. 
4.5.2  Impact  of  M&A  Type  on  Post  M&A  Long-Run  BHAR  for  Bidder  Firms  in  the  Consumer  and  Basic 
Materials Sector 
Table 6 below shows the results for the relationship between bidder firm shareholder return and the M&A type in 
the consumer and basic materials sector over the period 1999-2008. 





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Table 6. Post M&A long-run BHAR for bidder firms in the consumer and basic materials sector grouped by 
M&A type 
Industry 
Time  Period  (Event 
Window) 
Buy And Hold Abnormal Return 
Specialization  Diversification  Difference 
Consumer  and  Basic 
Materials Sector 
0 - 12 Months  0.63  -6.09***  6.72*** 
0 - 24 Months  5.77***  -0.39  6.15*** 
(n s  = 83) 
0 - 36 Months  5.86***  1.28**  4.57*** 
(n d  = 17) 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d  is the number of firms that specialized/diversified in the consumer and basic materials sector. 

The results of Table 6 suggest that bidders that chose to specialise in this this sector earned significant positive 
BHAR of 5.77%  and 5.86%  in  the 0-24  month  and  0-36  month  periods,  respectively.  On  the other  side,  the 
bidder firms’ performance that chose to diversify out of the consumer and basic materials sector was not stable. 
In particular, they generated insignificant BHAR in the 0-24 month period and a positive BHAR of 1.28% during 
the 0-36 month period.   
Regardless of the decision to specialise or diversify, bidder firm shareholder returns in the consumer and basic 
materials sector outperformed the control portfolio over the three 3 years period. This is significantly different 
from the findings of the non-specific sector analysis of specialisation and diversification shown in Table 4, where 
bidder firm shareholder returns underperformed against the control portfolio for both types of M&A. 
When  the  performance  of  specialised  firms  is  compared  against  the  diversified  firms  within  this  sector,  the 
results suggest that specialist bidder firms outperformed the diversified bidder firms by 6.72%, 6.15% and 4.57% 
in the 0-12 month, 0-24 month and 0-36 month periods, respectively. Specialization in this sector appears to 
yield greater returns to bidder shareholders than diversification. 
4.5.3 Impact of M&A Type on Post M&A Long-Run BHAR for Bidder Firms in the Energy and Utilities Sector 
Table 7 shows the results of the analysis about the impact of the M&A type on the post M&A long-run BHAR of 
bidders in the Energy and Utilities sector over the period 1999-2008. 

Table 7. Post M&A long-run BHAR for bidder firms in the Energy and Utilities Sector grouped by M&A type 
Industry 
Time Period   
(Event Window) 
Buy And Hold Abnormal Return 
Specialization  Diversification  Difference 
Energy and Utilities Sector 
0 - 12 Months  13.78***  -17.26***  31.04*** 
0 - 24 Months  39.76***  -11.48***  51.23*** 
(n s  = 16) 
0 - 36 Months  54.04***  -17.64***  71.68*** 
(n d  = 2) 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d  is the number of firms that specialized/diversified in the energy and utilities sector. 

Bidder  firms  that  chose  to  specialise  in  the  energy  and  utilities  sector  significantly  outperformed  the  control 
portfolio during all event windows. These firms earned significant positive BHAR as large as 54.04% for the 
0-36 month period. The bidder firms in the energy and utilities sector that chose to diversify underperformed the 
control  portfolio  by  17.26%,  11.48%  and  17.64  in  the  0-12  month,  0-24  month  and  0-36  month  periods, 
respectively.   
These results for diversified bidders are similar to the non-specific sector analysis of diversified firms, presented 
in Table 4, which underperformed against the control portfolio over the three years period. On the other side, 
conflicting results are observed regarding the specialised bidders. In particular, specialised bidders in the energy 
and utilities sector have significantly outperformed their control portfolios unlike those in the non-specific sector 
analysis of specialised bidders, in Table 4.   
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It is further noted that the bidder firms that chose to specialise in the energy and utilities sector significantly 
outperformed those bidders that chose to diversify out of the industry.    Table 7 reports that the bidders who 
specialised outperformed those that diversified by up to 71.68% in the 0-36 month period.   
In conclusion, in the long run, within the energy and utilities sector, specialised bidders earn greater returns than 
the shareholders of the bidders that choose to diversify out of this sector. 
4.5.4 Impact of the M&A Type on the Post M&A Long Term BHAR for Bidder Shareholders in the Industrial 
Sector   
Table 8 presents the results of the analysis on the selected event windows on the impact of the M&A type on the 
post M&A long term BHAR of bidders in the Industrial sector over the period 1999-2008. The results of table 8 
suggest  that  all  bidder  firms  in  the  industrial  sector  outperformed  the  respective  control  portfolios  especially 
those bidders that choose to specialise. The bidder firms that chose to specialise in the industrial sector earned 
significant  positive  BHAR  of  2.53%,  6.25%,  and  1.57%  for  the  0-12  month,  0-24  month,  and  0-36  month 
periods, respectively. These results are in contrast with the non- specific sector analysis, presented in Table 4, 
where significant negative BHAR are experienced for the bidder firms that chose to specialise.   
Similarly,  the bidder  firms  that  chose  to  diversify out of  the  industrial  sector  also  earned  significant  positive 
BHAR  of 5.29%  in  the 0-24  month period.    Once  again,  these  results  are  in  contrast  with  the  non-  specific 
sector analysis of Table 4.   

Table 8. Post M&A long term BHAR for bidder shareholders in the industrial sector grouped by M&A type 
Industry  Time Period (Event Window)
Buy And Hold Abnormal Return 
Specialization Diversification Difference 
Industrial
Sector 
0 - 12 Months  2.53***  0.73  1.80 
0 - 24 Months  6.25***  5.29***  0.96 
(n s  = 23) 
0 - 36 Months  1.57***  0.56  1.01 
(n d  = 14)
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d  is the number of firms that specialized/diversified in the industrial sector. 

Finally, there is no significant difference between the performance of the bidder firms that specialised in and 
those bidder firms that diversified out of the industrial sector.   
4.5.5 Impact of M&A Type on Post M&A Long-Run BHAR for Bidder Firms in the Communications Sector 
Table 9 shows the results for the impact of the M&A type on the post M&A long-run BHAR of bidders in the 
Communications industry over the period 1999-2008. The results reveal that the all bidder firms, regardless of 
their choice to specialise or diversify, underperformed the control portfolio in the long-run post M&A period. 
The bidder firms that chose to specialise in this industry suffered significant negative BHAR of -20.58%, -19.98% 
and -26.20% in the 0-12 month, 0-24 month and 0-36 month periods, respectively. Similarly, the bidder firms 
that chose to diversify out of this industry suffered large significant negative BHAR of -13.17%, -19.47% and 
-29.14% in the 0-12 month, 0-24 month and 0-36 month periods, respectively.   

Table 9. Post M&A long-run BHAR for bidder firms in the communications sector grouped by M&A type 
Industry  Time Period (Event Window)
Buy And Hold Abnormal Return 
Specialization Diversification  Difference 
Communications Sector 
0 - 12 Months  -20.58***  -13.17***  -7.40*** 
0 - 24 Months  -19.98***  -19.47***  -0.50 
(n s  = 35) 
0 - 36 Months  -26.20***  -29.14***  2.94** 
(n d  = 7) 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d  is the number of firms that specialized/diversified in the communication sector. 
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These  findings  are  similar  to  those  observed  for  the  non-specific  sector  analysis,  where  significant  negative 
BHAR  are  found  for  both  bidders  that  chose  to  specialise  or  diversify.  When  comparing  the  performance 
between bidders that chose to specialise in and those that chose to diversify out of the communications sector, 
contrasting results are reported. In particular, those bidders that specialised outperformed those that diversified 
by 2.94% in the 0-36 month period, and underperformed those that diversified away by 7.40% in the 0-12 month 
period. This is mainly attributed to the fact that the communication sector requires highly specialised skills that 
are not transferable to other industrial sectors and thus these firms would not perform well outside their industry. 
4.5.6 Impact of M&A Type on Post M&A Long-Run BHAR for Bidder Firms in the Technology Sector 
Table 10 shows the results of the analysis on the selected event windows on the impact of the M&A type on the 
post M&A long term BHAR of bidders in the Technology industry over the period 1999-2008.   

Table 10. Post M&A long-run BHAR for bidder firms in the technology sector grouped by M&A type 
Industry  Time Period (Event Window)
Buy And Hold Abnormal Return 
Specialization Diversification Difference 
Technology Sector 
0 - 12 Months  0.31  -13.33***  13.64*** 
0 - 24 Months  -2.32***  -21.77***  19.45*** 
(n s  = 39) 
0 - 36 Months  1.56***  -32.89***  34.46*** 
(n d  = 16) 
Notes. The monthly abnormal returns (AR) that are used to obtain the BHAR for this study are calculated using French (2012) data library 
expected returns for the U.S firms over the period 1999-2008. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% 
and 1% level, respectively. n s /n d  is the number of firms that specialized/diversified in the technology sector. 

The results suggest that the specialist bidder firms in the technology sector earned significant positive BHAR of 
1.56% in the 0-36 month period despite suffering significant negative BHAR of -2.32% during the 0-24 month 
period. The bidder firms that chose to diversify consistently suffered significant negative BHAR across all event 
windows with a BHAR of -32.89% during the 0-36 month period. 
A comparison of the performance of the bidder firms that chose to specialise in the technology sector and those 
that chose to diversify revealed that those that chose to specialise    significantly outperformed those that chose 
to diversify by 13.64%, 19.45% and 34.46% in the 0-12 month, 0-24 month and 0-36 month periods, respectively. 
Finally, it can be observed that the bidder firms in the technology sector perform similarly to bidder firms in the 
non-specific sector sample (see Section 4.5.7 and Table 4 for more details).   
Overall the sector specific analysis (with the exception of the financial and communication sectors), similarly to 
the non-specific sector analysis, provides evidence in support of our fourth hypothesis. 
4.6 Summary of the Results 
The results of this study suggest that the choices the bidder firms make during their M&A process such as the 
nature of the bid, the method of payment and the type of M&A affect their long term returns. 

Table 11. Findings for the non-specific sector analysis of the impact of the three factors on the long-run BAHR 
performance of bidder firms 
Factors  affecting  bidder 
shareholders’ return 
Performance  of  each  of  the  two  underlying 
categories of each factor 
Performance  comparison  of  the  two  underlying 
categories of each factor 
Nature of the Bid 
Friendly  Underperform *** 
Hostile bids outperform Friendly bids***     
Hostile  Outperform *** 
Method  of 
Payment 
Cash  Underperform ***  Cash bids outperform 
Stock bids***  Stock  Underperform *** 
Type of Merger 
Specialisation  Underperform ***  Specialising  firms  outperform  Diversifying 
firms***    Diversification  Underperform *** 
Notes. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% and 1% level, respectively 
Table 11 provides a breakdown of the findings of this study. It summarises the non-specific sector analysis results of the impact of the nature 
of  the  bid,  method  of  payment  and  the  type  of  M&A  on  the  firm’s  performance  during  the  0  –  36  months  window  post  the  M&A 
announcement. 
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In  the  three  year  period  after  the  M&A,  all  bidder  firms,  with  the  exception  of  those  in  hostile  M&As, 
underperform the control portfolio, and these results are consistent with those reported by Rau and Vermaelen 
(1998). More specifically this study reports that hostile bidders generate significant positive abnormal returns in 
the long run and they outperform the friendly bidders. These findings are confirmed by Franks et al. (1991)   
and support our second hypothesis. 
The findings of this study also suggest that both cash and stock bidders underperform the control portfolio in the 
long  run.  In  addition  cash  bidders  outperform  the  stock  bidders.  These  findings  are  consistent  with  the 
predictions of our third hypothesis. In addition these results are consistent with the findings of Loughran and 
Vijh (1997) and Sudarsanam and Mahate (2003). 
The results of this study’s investigation on the effects of the M&A type on the performance of the bidder firms 
suggest underperformance for all bidder firms regardless of the M&A type. This study further finds that firms 
that  specialised  outperformed  those  that  diversified  which  is  consistent  with  the  predictions  of  our  fourth 
hypothesis.  These  findings  contradict  Eckbo’s  (1986)  findings.  In  particular  Eckbo  did  not  report  significant 
difference in performance between those bidder firms that specialised and those that diversified.   
Lastly, this study took an in-depth look at the effect of the M&A type on the performance of bidder firms in 
different sectors: financial, consumer and basic materials, energy and utilities, industrial, communications and 
technology. Table 12 provides a clear breakdown of the extended findings of this study. It summarises the results 
for the sector specific impact of the M&A type on the firm’s performance during the 0 – 36 months window. 

Table  12.  Findings  for  the  sector  specific  analysis  about  the  impact  of  M&A  type  on  the  long-run  BHAR 
performance of bidder firms 
Sector 
Performance when compared to the control 
portfolio  Performance comparison of the two underlying categories   
Specialisation  Diversification 
Financial    Underperform ***  Underperform ***  Diversifying firms outperform Specialising firms*** 
Consumer  and  Basic 
Materials 
Outperform ***  Outperform **  Specialising firms outperform Diversifying firms*** 
Energy and Utilities  Outperform ***  Underperform ***  Specialising firms outperform Diversifying firms*** 
Industrial  Outperform ***  Outperform 
Performance of Specialising firms is not significant different than 
the performance of Diversifying firms     
Communications  Underperform ***  Underperform ***  Specialising firms outperform Diversifying firms** 
Technology  Outperform ***  Underperform ***  Specialising firms outperform Diversifying firms*** 
Notes. The *, ** and *** are used to show BHAR statistical significance at 10%, 5% and 1% level, respectively.   

The sector specific results reveal variations in bidders’ performance across different sectors. The non- specific 
sector  analysis,  presented  in  Table  11,  indicates  that  the  specialised  bidders  underperformed  their  control 
portfolio. This is true only for those bidders that chose to specialise in the financial and communications sectors. 
Other bidders that chose to specialise in the other sectors outperform their control portfolio. Again these findings 
provide evidence in support of our fourth hypothesis. 
Table 12 identifies that in four out of six sectors analysed, diversified bidder firms underperformed their control 
portfolios.  In particular bidders  that  chose to diversify out  of  the  technology,  communications, financial,  and 
energy  and  utilities  sectors  underperformed  their  control  portfolios.  Furthermore,  the  sector  specific  analysis 
suggests that specialised bidders outperformed the diversified bidders in four out of six sectors, which is similar 
to the non-specific sector analysis findings. In particular, specialised bidders outperformed diversified bidders in 
consumer & basic materials, energy & utilities, communications and technology sectors.    On the contrary, the 
specialised bidders in the financial sector were outperformed by the diversified bidders while those specialised 
bidders in the Industrial sector had no significant difference in performance from the diversified bidders. 
5. Conclusion   
The main objective of this study is to investigate how shareholder returns of bidding firms are affected by M&As. 
This is achieved by examining the impact that bid type, method of payment and the M&A type (specialisation or 
diversification)  may  have  on  the  long-run  returns  of  bidder  firms  in  the  three  year  period  after  the  M&A  is 
announced. Within this analysis, the study also provides industry specific analysis about the impact of M&A type 
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on the long-run returns of the bidder firms in six specific industries. 
The findings of this study are consistent with those of prior studies, and suggest that in the long-run (3 years) 
post the M&A, the shareholders of bidding firms lose value (-5.04%). The relationship between the nature of the 
bid and the bidder firms’ performance suggests that over the three year period after an M&A, bidder firms in 
hostile bids significantly outperform bidder firms in friendly bids by up to 26.03%. In addition, while hostile 
bidders earn significant positive BHAR’s in the long-run (20.36%), friendly bidders suffer significant negative 
BHARs (-5.67%).   
Regardless of the method of payment used, bidder firms generate significant negative BHAR’s over a three year 
period  after  the  M&A.  During  the  same  period,  the  cash  bidders  suffer  BHAR’s  of  -3.37%  whilst  the  stock 
bidders suffer BHARs of -7.93%.   
In terms of the relationship between bidder firm performance and the type of M&A, our results indicate that 
bidder firms that choose industry specialisation outperform bidder firms that choose industrial diversification in 
the long run by 6.31%, though both types of bidders generate significant negative BHARs.   
The in-depth analysis of the industry specific relationships between the performance of bidders and the M&A 
type confirms the outperformance of specialised bidders over diversified bidders in four out of the six sectors 
analysed:  consumer  &  basic  materials,  energy  &  utilities,  communications  and  technology.  However,  bidder 
firms in the financial industry perform better when diversifying into other sectors, whilst the performance of 
bidder firms in the industrial sector is unaffected by either specialisation or diversification. 
In terms of its limitations, this study is hampered by the inherent inaccuracies associated with any long-run event 
study.  For  instance,  it  is  difficult  to  identify  the  actual  impact  of  mergers  and  acquisitions  over  the  long-run 
especially as firms participate in other strategic and operational decisions (Martynova and Renneboog, 2008). 
Finally,  as  the  sector  specific  analysis  results  reveal  variations  in  bidder  performance  across  sectors,  future 
research  could  further  investigate  this  issue.  In  particular,  it  may  be  worthwhile  to  investigate:  a)  whether 
diversification into specific sectors yields different returns for bidder firms and b) identify the target sectors that 
may yield the most favourable diversification benefits for the specific(s) bidders’ industry.   
It would be interesting to investigate these issues further given that there appears to be a tendency for bidders 
from certain industries to diversify into specific sectors. This raises the question whether this strategy yields the 
most favourable diversification benefits for bidders. In particular, evidence from our data suggests that 71% of 
the firms that diversified out of the technology sector chose to enter the communications sector. In contrast, we 
also  observed  that  57%  of  the  firms  that  diversified  out  of  the  communications  sector  chose  to  enter  the 
technology sector. These observations suggest that bidder firms in the technology sector prefer to diversify into 
the communications sector, instead of other sectors, and vice versa. Is this strategy adopted because these firms 
assume that they will receive the most favourable diversification benefits from such a move? Future research 
may give us the answer to this question and ascertain whether the firms’ original assumptions were correct.   
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