| Event Study |
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| econometrics | |
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MOTIVATION The logic behind the event study methodology (within the specific context of Merger s) is explained in Warren-Boulton and Dalkir (2001): :Investors in financial markets bet their dollars on whether a merger will raise or lower prices. A merger that raises market prices will benefit both the merging parties and their rivals and thus raise the prices for all their shares. Conversely, the financial community may expect the efficiencies from the merger to be sufficiently large to drive down prices. In this case, the share values of the merging firms’ rivals fall as the probability of the merger goes up. Thus, evidence from financial markets can be used to predict market price effects when significant merger-related events have taken place. METHODOLOGIES The general event study methodology is explained in, for example, MacKinlay (1997). Warren-Boulton and Dalkir use an event-probability methodology originally developed by McGuckin ''et al.'' (1992) to be applied to merger analysis. Their specific methodology involves ex-ante calculation of the financial markets' assessment of the probability that the merger will indeed take place in the future. APPLICATION TO MERGER ANALYSIS Warren-Boulton and Dalkir (2001) apply their event-probability methodology to the proposed merger between '' Staples, Inc. '' and '' Office Depot '' (1996), which was challenged by the Federal Trade Commission and eventually withdrawn. Empirical methods Warren-Boulton and Dalkir (2001) run a Time-series Regression . In addition, they also look at the effect of the merger in specific event windows. Findings Warren-Boulton and Dalkir (2001) find highly significant returns to the only rival firm in the relevant market. Based on these returns, they are able to estimate the price effect of the merger in the product market which is highly consistent with the estimates of the likely price increase from other, independent, sources. REFERENCES
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