The Post-Merger Performance: Evidence From Italy

Abstract

The objective of this paper is to investigate whether mergers create value for shareholders in both the short and long term. For this purpose, 120 announcements of mergers that were registered in Italy during the period 1994-2006 among listed companies were examined. The short-term analysis was conducted using the event study methodology in order to estimate the cumulative abnormal returns (CARs) in the time window around the announcement date (-10, +10). In this work, the sample of 120 mergers was divided into two sub-samples: the first considers the mergers that were carried out in all sectors of the economy, and the second focuses only on bank mergers. From the results obtained it would appear that, while the sub-sample of all mergers registered a statistically significant value creation for the shareholders of both the bidder and target companies, values also confirmed by combined analysis, the second sub-sample registered negative values for bidder companies and positive values for target companies. Negative values also seem to be confirmed by the results of the combined analysis both at the date of announcement and throughout the entire period of observation. For the long-term analysis, the Buy and Hold Abnormal Returns (BHARs) methodology was used, with which it was possible to observe the returns for three years. In the 36 months following the merger, the portfolios showed a significant destruction of value.