The Efficient Market Theory and Mergers and Acquisitions (M&As) Puzzle: Evidence from Italy

Journal of Modern Accounting and Auditing, November 2012, Vol. 8, No. 11, pp. 1704-1711

Posted: 19 Dec 2012

See all articles by Fabrizio Rossi

Fabrizio Rossi

University of Cassino and Southern Lazio

Domenico Celenza

University of Cassino

Date Written: 2012

Abstract

The efficient market theory is a central point in finance. If the capital market is competitive, the investors cannot expect superior gains from their investment strategies with respect to the risk profile. Event studies are an approach to verify the impact of the information on the stock prices. In an efficient market, stock prices should fully, promptly, and quickly capture all the information. Instead, the market shows phenomena of an under-reaction and over-reaction for both the short and the long run. The mergers and acquisitions (M&As) are examples of anomalies. Often, the bidder companies record the negative abnormal returns for both the short and the long run. In contrast to the efficient market theory, the empirical evidence shows that this phenomenon is widespread in all (or most of) the countries of the world. This work examines the long-run performance in M&As. For this purpose, 40 bidders were observed in Italy during the period of 1994-2008 among listed companies. The buy and hold abnormal returns (BHARs) methodology was used, with which it was possible to observe the returns for three years following the deal.

Keywords: efficient market theory, mergers and acquisitions (M&As), portfolio choice, investment decisions, buy and hold abnormal returns (BHARs), long-run performance, Italian stock market

JEL Classification: G11, G14, G34

Suggested Citation

Rossi, Fabrizio and Celenza, Domenico, The Efficient Market Theory and Mergers and Acquisitions (M&As) Puzzle: Evidence from Italy (2012). Journal of Modern Accounting and Auditing, November 2012, Vol. 8, No. 11, pp. 1704-1711, Available at SSRN: https://ssrn.com/abstract=2191036

Fabrizio Rossi (Contact Author)

University of Cassino and Southern Lazio ( email )

Via G. Di Biasio, 43
Cassino, Frosinone 03043
Italy

Domenico Celenza

University of Cassino ( email )

Via G. Di Biasio, 43
Cassino, Frosinone 03043
Italy

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