Mergers and Shareholders' Wealth in the Insurance Industry

Abstract

This paper examines the stock market valuation of mergers in the insurance industry between 1996 and 2000 in Europe and in the US. We form a sample of 56 deals in which the acquiring company is listed. Our data reveal that insurance companies mergers enhance value for bidder shareholders. Over the event window (-20,+2) their abnormal return is 3.65%. The abnormal returns for acquiring firms are larger the greater the relative size of deal value. We also find that mergers occurring between insurance companies located in the same European country are not valued positively by the market, while cross-border deals appear to increase shareholder's wealth. The analysis of a sub-sample of simultaneously listed bidders and targets reveals that the combined insurance companies experience significantly positive abnormal returns - over the event window (-20,+2) shareholders gain 5.27% - and consistent with previous findings, target shareholders substantially increase their wealth.

Keywords: Insurance companies, mergers and acquisitions, shareholders wealth

JEL Classification: G14, G22, G34