Bidder returns for Norwegian acquirers : a study on how deal- and firm-specific characteristics affect bidder returns for Norwegian acquirers of foreign and domestic companies

We examine the announcement returns for Norwegian acquirers of foreign and domestic targets between 1988 and 2014. This is done using panel data in a random effects model with stock return data from NHH’s Børsprosjektet, and transaction data from SDC’s mergers and acquisitions database. We are the first, to our knowledge, to use panel data regression analysis on bidder announcement returns. Analysing periods around acquisition announcements reveal that only the day of announcement yields significant abnormal returns, which is consistent with the efficient market hypothesis in semi-strong form. Furthermore, we find no significant abnormal returns for firms acquiring public targets, which supports the theory of an efficient market for corporate control. However, we find significant abnormal returns for firms acquiring private targets. The returns from acquiring private targets are greatest when stock is used as the method of payment, while using stock to acquire public targets yields the most negative returns. The acquirer’s acquisition experience, the absolute size of the acquirer, and the target being in a related industry all have negative effects on announcement returns. Furthermore, we model the effect of relative size on announcement returns as a cubic function. This reveals a negative relationship until the target is one fourth of the acquirer’s size, and a positive relationship beyond this point. Additionally, we are, to our knowledge, the first to account for the possibility of altered marked beta coefficients as a result of acquisitions, through the use of a step-beta approach.