European Mega Deals During the Sixth Merger Wave. Is the Legal Origin of the Bidder and the Target a Determinant of Short-Term Investor Reaction?

Abstract

In the context of the mega merger and acquisition announcements during the sixth merger wave in Continental Europe, this paper presents an analysis of the influence of the bidder and target legal origins in the short-term reactions of the cumulative abnormal returns, the cumulative absolute abnormal returns and the volume traded. 92 bids occurred between 2003 and 2007 have studied. Our main result is a short term negative abnormal return for the bidder stockholders' firms as a consequence of the announcement, which can be mainly associated to the presence of companies whose legal origin is German. This reaction is also accompanied with a significant effect above the average level in the market volatility and the volume traded. Finally, there does not seem to be any significant different reaction depending on whether operations happen between companies from the same legal origin or from a different one.