Stock market reactions to merger announcements: COVID-19-induced transactions

Tóm tắt

Purpose

The central aim of this study was to analyse stock market reactions to merger announcements in South Africa.

Design/methodology/approach

The study identified thirteen mergers and acquisitions (n = 13) that took place following the COVID-19 pandemic. An event study approach was utilized for data analysis, given its relevance to the study. The event window was made up of 20 business days (−10 t +10).

Findings

Overall, the cumulative average abnormal returns remained positive throughout the event window, suggesting that, at an aggregate level, the markets reacted positively to merger decisions, particularly regarding mergers that received clearance from South African competition authorities. Notably, on the event day (t+0), cumulative average abnormal returns peaked at 2%, which indicates that the markets were highly efficient in absorbing information about merger decisions.

Practical implications

These observations support the semi-strong form of the efficient market hypothesis, suggesting that stock prices rapidly reflect publicly available information, including announcements related to mergers and acquisitions.

Originality/value

Firstly, research on this topic remains limited in South Africa, and the few existing studies have produced ambiguous results. Secondly, earlier research primarily focused on the period prior to the COVID-19 pandemic, before and after the 2008 financial crisis. In contrast, this proposed study concentrates on transactions induced by the COVID-19 pandemic, investigating whether such transactions have positively influenced the stock returns of either the acquiring and/or target firm’s shareholders. Exploring this new context helps enrich the understanding of market efficiency and investor reactions to M&A news in emerging economies.