Dissertation Gary J Ford Oct 2005[1]

Merger Timing, Payment Method and Firm
Size Effects on Shareholder Wealth; An
Event Study of UK Acquiring Companies
for the years 1992 and 2000
_____________________________________________________________________
Gary Joseph Ford
K0433159
___________________________________________________
DISSERTATION
PGMFS
MA Accounting and Finance
October 2005
Supervisor: Dr. Stuart Archbold

Gary J Ford K0433159 II
MA Accounting & Finance
Abstract
This dissertation examines a sample of 74 mergers in the UK, focussing on the
Acquiring company. This sample is sub-divided into two years, namely 1992 and the
year 2000, so as to examine the effect of the timing of the mergers in a period of low
activity (1992), and a period of high activity (2000). In total, 29 companies were
identified for 1992, and 45 for the year 2000. This sample was then further broken
down by firm size, by payment method, and combinations of firm size and payment
method. The primary event window used was -1 to +1 days, with various other
windows used for means of comparison.
Overall, it was found that the majority of results produced were insignificantly
negative, and the Efficient Market Hypothesis was not supported by the observations.
The hypotheses concerning firm size, payment method and firm size with payment
method were supported by the results, but the remaining five hypotheses formulated
in this dissertation were not supported. Thin trading may have been a problem with
some of the results, as no control was used. The sample size was also relatively small
in some of the sub groups, which may have made the results even more insignificant.

Gary J Ford K0433159 III
Declaration
“I declare that this Dissertation is all my own work and the sources of
information and material I have used (including the Internet) have
been fully identified and properly acknowledged as required.”

Gary J Ford K0433159 IV
Acknowledgements
I wish to thank my Supervisor, Stuart Archbold for his excellent
guidance.
I wish to thank my parents for their continuous support in me, without
whom, this degree would not have been possible.
I also wish to thank my southern family Alex, Izzie, Kirk and Lee for
their friendship and support throughout the year.

Gary J Ford K0433159 V
Contents
Abstract II
Declaration III
Acknowledgements IV
List of Acronyms VI
List of Tables VII
List of Illustrations VIII
Chapter 1: Introduction P 1
Chapter 2: Literature Review P 3
Chapter 3: Methodology and Data Sample P 18
Chapter 4: Results P 23
Chapter 5: Conclusions P 43
References P 48
Appendices P 51
Screen Dump P 68

Gary J Ford K0433159 VI
List of Acronyms
AR Abnormal Returns
AAR Average Abnormal Returns
CAAR Cumulative Actual Abnormal Returns
EMH Efficient Market Hypothesis

Gary J Ford K0433159 VII
List of Tables
Table 1: Previous General Results Summary P 08
Table 2: Previous Merger Cycle Results Summary P 11
Table 3: Previous Firm Size Results Summary P 13
Table 4: Previous Payment Method Results Summary P 15
Table 5: Number of Companies in each Sub Group P 19
Table 6: CAAR All Companies P 24
Table 7: CAAR Small Sized Firms P 27
Table 8: CAAR Large Sized Firms P 29
Table 9: CAAR Cash Payment Method P 31
Table 10: CAAR Equity payment Method P 33
Table 11: CAAR Small Firm Size with Cash Payment Method P 35
Table 12: CAAR Small Firm Size with Equity Payment Method P 37
Table 13: CAAR Large Firm Size with Cash payment Method P 39
Table 14: CAAR large Firm Size with Equity Payment method P 41

Gary J Ford K0433159 VIII
List of Illustrations
Graph 1: CAAR All Companies -10 to +10 Days P 25
Graph 2: CAAR Small Size -10 to +10 Days P 28
Graph 3: CAAR Large Size -10 to +10 Days P 28
Graph 4: CAAR Cash payment -10 to +10 Days P 32
Graph 5: CAAR Equity Payment -10 to +10 Days P 32
Graph 6: CAAR Small & Cash -10 to +10 Days P 36
Graph 7: CAAR Small & Equity -10 to +10 Days P 36
Graph 8: CAAR Large & Cash -10 to +10 Days P 40
Graph 9: CAAR Large & Equity -10 to +10 Days P 40

Chapter 1: Introduction
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Gary J Ford K0433159 1
Chapter 1:
Introduction
The purpose of this dissertation is to add to the empirical evidence on the subject of
Mergers and Acquisitions, and their effect on the wealth of the shareholder. It is an
analytical / explanatory piece of research, and does not presume to make any original
findings. The process used throughout is quantitative, as the vast proportion of the
work will be analysing the abnormal movements in share prices of the acquiring firm.
As mentioned, this research will be to add to the existing body of empirical evidence,
so it is therefore, in its nature, pure / basic research. The logic behind the research is
deductive, as theory will be tested against empirical evidence.
Chapter 2 discusses the theoretical framework, empirical evidence and previous
results, and concludes with a formulation of several hypotheses concerning the
predictions of the results. Chapter 3 will examine the methodology employed to the
calculations of the event study, and details of the sample used. In Chapter 4, there is a
discussion and analysis of the results of the event study, and some summary
conclusions are made. Chapter 5 makes conclusions on the results and offers
explanations as to possible reasons for the results.
The effect of Mergers and Acquisitions (M&A) on shareholder wealth is a widely
covered research area. Empirical evidence would seem to suggest that the average
return to shareholders is zero, with the target company tending to make a more
significant gain. In the US, studies by Agrawal et al (1992) and Jensen & Ruback
(1983) show evidence of returns to the acquiring company being significantly
negative. UK research seems to be far more inconclusive than US studies. Results
vary, especially concerning the acquiring company, with more often than not a
negative return also being observed (Gregory 1997; Limmack 1991; Higson & Elliot

Chapter 1: Introduction
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1993). Methods employed have included examinations of methods of payment, the
size effect and more recently, the merger cycle.
There appears to be lack of conclusive evidence on the effect of merger cycles, and in
particular, a combination of the effect of merger cycles, payment method and firm
size together on shareholder wealth. The purpose of this dissertation will be to add to
the empirical evidence concerning the effects of timing of mergers on shareholder
wealth of acquiring companies. Acquiring companies have been selected as opposed
to target companies, due to there being less conclusive evidence. This investigation
will be carried out using an Event Study, employing Abnormal Returns (AR’s),
Average Abnormal Returns (AAR’s) and Cumulative Average Abnormal Returns
(CAAR’s), during periods of low merger activity (1992) and high merger activity
(2000). First, timing will be investigated, as will payment method and firm size. Next,
timing coupled with payment method, followed by timing coupled firm size will also
be investigated. Finally, timing, payment method and firm size will all be investigated
simultaneously, with a view to determining the significance of the factors and
combinations of factors, and a ranking of that significance.

Chapter 2: Literature Review
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Chapter 2:
Literature Review
Within this chapter, there contains an examination of the theory behind the M&A
phenomena, and an exploration of the previous empirical results. The theoretical
framework is first examined in an attempt to establish a number of the major theories
as to why M&A takes place. Several other theories are also identified, although they
are not examined at such depth, as the focus of this examination is related solely to
the major theories.
Following the theoretical framework is a review of the available literature on M&A,
and in particular, the specific issues that are to be more thoroughly examined. These
issues include the research into, and empirical evidence concerning the Efficient
Market Hypothesis (EMH); differences in results of the target and acquiring
company; differences in the UK results in contrast to the US results; the effect of the
timing of mergers and the condition of the economy; the effect of the payment method
employed; and the effect of the size of the bidding firm.
Throughout these particular areas of interest, there is a systematic review of several
criteria. These include the views, both opposing and supportive of several previous
researchers; the event window used; the methodology employed; the benchmark used;
the results of the research concerning whether the effects of M&A is a value creating,
preserving or destroying process, and the significance of those findings. A more
substantial examination of the methods will be later reviewed in the Methodology in
Chapter 3.

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2.1. The Theoretical Framework
In an attempt to explain the motivations behind the activity of M&A , and indeed the
empirical results, a theoretical framework has been developed, detailing several
possible reasons why M&A takes place. A crude method of organising these theories
is to group them into two classes, namely, theories supporting the motivations behind
M&A are solely for the benefit of the shareholder, and the maximisation of their
wealth; and that M&A takes place for reasons other than maximising the
shareholders’ wealth.
The first two of the five major theories fall under the former category. These are the
Neo-Classical Theory, and the Synergy theory. These theories help to explain the
positive effects on shareholder wealth experienced as a result of merger activity. The
empirical evidence section in this chapter will further investigate these results.
Neo-Classical theory assumes that managers make decisions based on the best-
interests of the shareholder (Arnold, 2004). Within the context of corporate
acquisitions therefore, the decision to engage in such activities will be measured by
the potential affect the event will have on the share price of the company. In
particular, this means whether the event will increase, sustain or decrease the share
price (Parkinson & Dobbins, 1993). A popular method of measurement is the Net
Present Value technique, which concludes that if a project has a NPV of at least zero,
nothing has been lost in terms of wealth. If it is assumed that the takeover of another
company will increase, or at least sustain shareholder wealth, then management will
further consider accepting the implementation of a takeover. However, if it is assumed
that the process of engaging in a merger will decrease the value of the company’s
shares (i.e. a NPV of less than zero), then the decision will be made not to go ahead
with the opportunity.
The concept of Synergy assumes that the combined entity of the target and bidding
company will achieve synergistic benefits, and for all wants and purposes will be of a
value greater than the sum of its parts (Parkinson & Dobbins, 1993). These benefits
can be either operational or non-operational in nature. Operational benefits are such
gains as those from sharing resources, for example, using one external auditor for the
combined entity, as opposed to one for each of the two separate entities (Arnold,

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2004). Non-operational benefits include activities such as growth (particularly organic
growth), and the advantages of enabling faster growth and thus further increasing
operational benefits through economies of scale, and a greater market segment and/or
power (Limmack, 1991). The nature of this particular investigation will not be
examining the criteria used in the assessment of synergy gains, and as such, no real
conclusive judgements will be made on whether the nature of the findings can be
explained through synergy per-say.
Shareholder wealth maximisation may not be the motivation of a merger. Instead,
reasons could include the personal motivations of the management team. Systems are
in place to help protect the shareholder from such activities, by recognition of Agency
Theory. Within Agency Theory, it is assumed that shareholders need protecting from
potential abuse of power, or indeed accidental misinterpretations or inaccuracies, by
management (Arnold, 2004). This is particularly concerned with the publications of
the Annual General Reports (AGR’s). Such issues as external audit and transparency
have been evolved to aide shareholders. Because of this, managers should find it
increasingly more difficult to take part in activities that solely or mainly benefit their
own interests at the expense of the shareholder. With the existence of Agency Theory,
and the steps taken to alleviate the lack of trust of managers by shareholders, it should
logically be less likely that management will primarily pursue their own benefits.
However, as will be seen in the review of empirical evidence, negative returns to
shareholders, both long and short term, are experienced. As such, three major theories
help to explain the reasons behind this. These theories are known as Maximising
Management Utility, Hubris and Disciplinary.
Maximising Management Utility theory assumes that the motivation for partaking in
takeover activities is centred on management fulfilling their own needs and personal
objectives, or increasing their utility (Franks & Harris, 1989). An increase in salary or
power may serve them to directly increase their utility by allowing them to buy a
bigger house, or be placed in a position to control a vaster business empire with more
subordinates, also boosting their status and ego. This theory helps to explain negative
returns experienced by the acquiring company. However, managers may not
necessarily knowingly engage in value decreasing mergers.

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Therefore, this theory may not necessarily be a good explanation of a negative return.
The same can be true of a positive return. Because a positive return is experienced,
this may simply be an added bonus to management. The management may be
experiencing personal benefits, and the positive return experienced to the shareholders
may not matter to them. A more detailed examination of management remuneration
would be required to determine their personal monetary gains. However, it would be
unlikely that if the motivation was simply concerned with ego or empire building,
management would admit to this.
It is also true that although a merger or takeover may reduce the share price of the
company, it may be necessary to survive, and in turn, increase the wealth of the
shareholder in other ways (ibid). This may be by preserving the life of the company
and the investment made by the principles (or shareholders), or by placing the
company in a position to achieve a longer term strategic advantage, with the potential
to increase the shareholder wealth at a later time (ibid). It can therefore be argued that
management may not always work directly to maximising shareholder wealth, but
may do so in a more indirect method. Thus, the immediate wealth created by M&A
may not be the greatest measurement of the benefits to the shareholder, or basis to
apply a theory to explain the phenomena.
Hubris Hypothesis, first brought to light by Richard Roll (1986) argues that it is not
necessarily the intention of the manager to engage in value decreasing activities,
rather, an error of judgment in the valuation of the project has been made. Roll (ibid)
describes the motivation for the merger as management seeing a company that may be
underperforming, with financial qualities inherent with a good target. In this situation,
it will be judged that the company is an ideal target, and a decision to pursue a
takeover should be made. In an attempt to acquire the target, the bidding company
will overpay, beyond the true value of the target in order to win any bidding battle
with other potential acquirers.
Once the target has been acquired, the winner of the battle is the one who has been
willing or able to pay more than other competitors. Therefore, they are said to have
the winners curse (Parkinson & Dobbins, 1993), as they have over paid, and if they

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wanted to sell the company, they would have to sell it for less in order for another
company to be able to afford to purchase it. In this situation, they are forced to retain
the investment.
With Hubris, the wealth of the shareholder is shadowed by the desire to grow, and
thus increase the managers’ status and power (Limmack, 1993). Again, as with
Maximising Management Utility Theory, the managers are placing their own needs
ahead of the owners’. In this case, the price paid for the target is more than the sums
of its assets are worth in a financial sense, and possibly a strategic sense too.
Disciplinary Theory relates to the Agency Theory issues of trust, as mentioned earlier
in this chapter. Within Disciplinary Theory, the market is seen to be a market of
corporate control. Companies whose managers under-perform in the maximisation of
shareholder wealth will be subject to takeover, and removed from their position by
more effective managers from the bidding company (Limmack 991). It is therefore in
the best interests of managers to ensure that investments made by the company
increases the wealth of its owners. Thus, companies that have been acquired should
experience a wealth gain as the effect of a new, more efficient management team
should help to raise the share price. According to Parkinson & Dobbins (1993), a
market for corporate control will prevent managers from making investment decisions
that are not in the shareholders’ best interests. It is fair to assume then, that for the
acquiring company, positive results to shareholder wealth should also be experienced.
One method of checking this would be to examine any takeover attempts of a
company that has acquired another firm, and as a result, reduced shareholder wealth.
It would be fair to assume that such a company will have become a target itself.
2.2. The Empirical Evidence
2.2.1. General M&A Results
Despite the vast amounts of research into the area of M&A, there still appears to be
no conclusive evidence as to whether they are value creating, preserving or destroying
events on the wealth of the shareholder. The outcomes of event studies and other
research provide for mixed results. Results seem to differ from the acquiring company

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and the target company, whether the study is focussed on US or UK companies, and a
variety of other parameters. Evidence suggests that on average, the overall return to
Table 1: Previous General Results Summary
Researcher
Sample Size / Year
UK
US
Bidder
Target
Event
Window
Result
B (T)
Period
Data
Comment
Parkinson & Dobbins
(1993)
190 / 1975 - 1984
UK T Month
Announced
(+7.91%) Monthly
Gregory (1997)
403 & 452 / 1984 - 1992
UK B & T
Comb.
Month
Announced
-3.0%
(CAPM)
Monthly
Limmack (1991)
500 / 1977 - 1986
UK B & T Bid Period 0 Monthly
Sudarsanam et al (1996)
420 / 1980-1990
UK B & T -20 to +40
Days
-4.04% Daily
Barnes (1978)
39 / 1974 – 1978
UK B Month 0 to
+1 Month
0 Monthly Minor +ve Pre;
Major –ve Post
Announcement
Agrawal et al (1992)
937 / 1985 – 1987
US B +1 Month to
+12 Month
-1.53% Monthly
Note on Abbreviations: Comb. Is for Combined; +ve is for Positive; -ve is for Negative; Lge is for
Large; Sml is for Small
the shareholders of the acquiring company are zero, whereas returns to the target
company are positive.
Efficient Market Hypothesis (EMH) suggests that in a perfect market, the reaction to
new information will be immediate, and any errors will be consequently corrected
immediately. If this is the case, then there should be no abnormal return witnessed in
the share price of any companies involved in M&A activity (Dodds & Queck). It is
fair to say that any abnormalities should be minimal. However, if abnormalities do
exist, then the efficiency of the market is brought into question, as is the theory of
EMH. Table 1 presents a summary of various studies carried out in both the UK and
the US, and for bidder and target companies.
As can be seen by Table 1, there do appear to be abnormal returns in the market.
These returns are a combination of negative, zero and positive abnormalities. Results

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vary, yet the return to the acquiring company appears to be mainly negative, although
in some situations, positive results have been identified (Limmack 1991).
In the US, studies by Agrawal et al (1992) show evidence of returns to the acquiring
company being significantly negative, with -1.53% abnormal return experienced by
the acquiring company. The sample size used was 937 US Companies during the
period of 1985 through 1987. UK research seems to be far more inconclusive than US
studies. Results vary, especially concerning the acquiring company, with more often
than not a negative return also being observed (Gregory 1997; Limmack 1991; Higson
& Elliot 1993).
Parkinson & Dobbins (1993) examined a sample of 190 companies in the UK,
between the years of 1975 and 1984. They found that on average, the target company
experienced a positive return of 7.91%, claiming that it is the M&A event that
provides the positive returns. However, Gregory (1997) found that a combined return
of both the bidder and target companies surrounding announcement was negative at -
3.00% using the CAPM Model, and negative with the other models used. EMH
suggests that on average, the abnormal return should be zero, which implies that there
will be some positive as well as negative returns that balance out to zero. Parkinson
and Dobbins (ibid) claim that the adjustment process of the market was slow, which is
inconsistent with EMH. They also discovered that when the firm’s size was taken into
account, the results were less negative, as was the case when equity was used rather
than cash to finance the M&A.
Sudarsanam et al (1996) find that the bidder loses 4.04% on average, and that
ownership structure has a significant effect on returns. They associate Hubris with the
results, claiming that they are inconsistent with Synergy Theory. They also note that
Equity financed mergers produce smaller gains then cash or mixed payment methods.
It appears from these results that the payment method may have an effect on the
wealth of the shareholder.
Limmack (1991) finds in his study of 500 companies from 1977 through 1986, that
there is no overall net wealth decrease to shareholders. However, the bidding firms
shareholders experience a negative return, whereas the target company shareholders

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experience a significant gain. This is complimentary to EMH, as it shows that
although small increases or decreases are experienced, overall, a net effect of zero is
achieved. Barnes (1978) also finds an overall gain of zero. He discovered that in his
sample, there were small price increases leading up to the merger, and relatively
larger decreases immediately afterwards. This could indicate a leak of information to
the market, meaning the market adjusted to the previous abnormal gains. It has been
theorised by various researchers, including Shama & Mathur (1989) that Mergers
follow an abnormal rise in share prices. This could help to explain Barnes’ (1978)
results.
2.2.2. Merger Timing
The theory of Merger Waves suggests that mergers come in waves, with several
hypotheses as to why this happens. Various researchers, including Town (19920,
Resende (1999) and Golbe & White (2001) all agree that the phenomena of merger
waves are indeed real, and have a significant effect on the wealth of shareholders.
Shama & Mathur (1989) find that merger waves are related to the conditions of the
economy, and that causality plays a part in the share price of companies. They claim
that a strong economy causes an abnormal rise in share prices, and that these
increased prices, coupled with increased liquidity, cause a wave of merger activity.
Harford (2004) supports this theory, and further finds that economic, regulatory
and/or technological shocks also drive merger waves. He also notes that these shocks
can aggregate over time, and again, dependant on overall capital liquidity, can cause a
surge of merger activity. Harford (ibid) reasons that Neo-Classical theory is a good
explanation, and that sufficient Liquidity is needed for the wave to occur. This
supports the findings that just prior to merger waves, the economy is particularly
strong, meaning either over valued stocks or increased liquidity, perhaps caused by
the overvalued stocks (Shama & Mathur 1989).
Blackburn & Raven (1992) note that there are substantive cyclical regularities across
countries, as well as time. They remark on the UK following the US into a wave of
high activity on several occasions. Crook (1995) discusses Destabilising Pressure
hypothesis, whereby a company will attempt to recover lost profits due to a sudden

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change in the competitive environment via corporate takeovers. The results of Crook
(ibid) seem to support this theory.
Table 2: Previous Merger Cycle Results Summary
Researcher
Sample Size / Year
UK
US
Bidder/
Target
Event
Window
Result
B (T)
Period Comment
Moeller et al (2005)
1998 - 2001
US B -2 to 0
years
0 to +2
years
C 0.02%
Eq -0.65%
C -1.53%
Eq -5.74%
Yearly 1990 – 1997
= +ve
1998 – 2001
= -ve
Agg. Major -ve
Note on Abbreviations: +ve is for Positive; -ve is for Negative; C is for Cash Payment; Eq is for
Equity Payment
When examining the office for National Statistics, merger activity appears to have
booms and busts, much like the business cycle. This could be due to several reasons.
Arnold (2004) discusses the trends of companies expanding to become
conglomerates, and then divest to achieve synergy. Arnold (ibid) also discusses the
strategy of following the competitors lead in an effort to survive. M&A is discussed
as an activity of survival in itself. Because M&A’s cost so much money, perhaps they
have to be spaced out, as companies need time to recover earnings.
Empirical evidence concerning the timing of M&A’s suggests that periods of high or
low activity have an effect on the generated return. Higson & Elliot (1998) and
Gregory (1997) acknowledge the effect of merger activity on shareholder wealth
generation. Higson & Elliot (1998) dissect their findings into sub periods, note
significant differences in results, and compare to Agrawal et al’s (1992) US study, yet
they do not explain those results.
Agrawal et al (1992) find that Franks et al (1991) results of returns being non-
significantly negative are specific to the period they studied, namely 1975 – 1984. By
examining Table 2, it can be seen that in the study carried out by Moeller et al (2005),
in the period of lower M&A activity (1990 – 1997), more positive gains were

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experienced, whereas in the period of higher activity (1998 – 2001), more negative
gains were experienced.
M&A’s which occur in times of low activity may then be considered to be more
strategically orientated to the core strategies, rather then fighting to survive? There
appears to be a gap in this area of research, in so far as there is not as much empirical
evidence on the subject as other factors such as benchmarks, payment methods, or
firm size. Researchers such as Sudarsanam & Mahate (2003) discuss “Glamour
Acquirers” and “Value Acquirers” in terms of payment method. Perhaps this is also
true of the timing of the merger.
Another explanation could be that Managers recognise their stocks are overvalued,
and thus decide to spend the extra money on investing in an acquisition. By paying for
this acquisition with the overvalued stock, although they may make an initial loss on
the share price, that loss only really balances out the abnormal overvaluation to the
correct level. Thereby, they have managed to actually increase the value of the
company.
2.2.3. Firm Size
Research into size effects suggests that small-firms tend to make a larger gain than
large-firms. Moeller et al (2004) found that acquiring firms lost an average of $23m
US upon announcement between the years of 1980 and 2001, claiming the existence
of a size effect. Moeller et al (ibid) also observed that the return for small sized
acquiring firms was 2% higher than for larger firms, and irrespective of method of
payment and other deal characteristics. Agrawal et al (1992), when employing the
Returns Across Time and Securities (RATS) method, adjusted for firm size, also
found that US takeovers were unambiguously, on average, wealth reducing for
acquiring companies.
Higson & Elliot (1993) and Limmack (1996) studied size effects in the UK. In both
studies, the Dimson & Marsh (1986) size-decile control method was used, and
significant negative abnormal returns were observed during the event, but long run
negative abnormal returns were seen to be insignificant. These results appear to
follow much US versus UK based research, in that UK evidence is less conclusive.

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Moeller et al (2004) suggest several reasons why small firms outperform large firms
in acquiring companies. Under free cash flow hypothesis, it is believed that managers
wishing to grow their empire would rather partake in M&A than reward shareholders
with dividends. Generally, they suggested that incentives of managers in small firms
Table 3: Previous Firm Size Results Summary
Researcher
Sample Size / Year
UK
US
Bidder/
Target
Event
Window
Result
B (T)
Period Comment
Higson & Elliot (1998)
830 / 1975 – 1990
UK B Month
Announced
All +0.43%
Lge +0.02%
Monthly
Kennedy & Limmack
(1996)
247 / 1980 – 1990
UK B & T -3 to -1
0 to +1
-12 to -1
+2.92%
-0.16%
+14.17%
Daily Size based
Decile used to
control for size
Limmack (1993)
525 / 1977 – 1986
UK B & T Month
A to C
-0.64% Monthly Size based
Decile used to
control for size
Dimson & Marsh (1985)
862 / 1975 – 1982
UK B & T -13 to +24 Negative Monthly
Chan et al (1985)
20 portfolio’s
1953 – 1977
US B & T Various Small Firms
= Higher
Ave. Results
Monthly Due to higher
Beta’s
Moeller et al (2004)
12,023 / 1980 – 2001
US B -1 to +1
Days
+ve
-ve for L&E
Daily
Note on Abbreviations: Month A is Month Announced; Month C is Month Completed; Ave. is for
Average; +ve is for Positive; -ve is for Negative; L&E is Large firm with Equity Payment
are better aligned with those of shareholders in large firms (ibid), meaning a more
positive return for acquiring firms.
From examining the results of Kennedy & Limmack (1996), it can be seen that the
period of twelve days leading up to the announcement day provides for a large gain.
This could again be supportive of the merger cycle theory. The loss experienced from
day zero to day +1 shows a loss, which is complimentary of EMH, as it shows the
market has balanced out the abnormal from the period of -3 to -1.
Generally speaking then, it is fair to assume that smaller firms will experience larger
gains than larger firms. This could also be due to the fact that they do not have as

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much money to spend, and ergo, as much to overpay with. So far, it may also be fair
to comment that the combination on a low period of merger activity coupled with a
the acquiring firm being of a smaller size may produce a smaller loss, or larger gain to
their shareholders’ wealth.
2.2.4. Payment Method
Research into payment method suggests that generally, cash financed acquisitions
provide more positive return than equity. The choice of issuing equity over cash
shows a lack of confidence in the investment, and causes a dilution of shares, where
as cash shows confidence and generates tax benefits (Arnold 2004). Agrawal et al
(1992) found that equity financed acquisitions generate significant negative post
acquisition returns, whereas cash financed acquisitions are not significantly different
from zero. Work by Franks et al (1991) which suggested the opposite, was dismissed
by Agrawal et al (1992), claiming their results could be explained by the time period
in which the M&A activity occurred.
Mitchel et al (2004) emphasise the relevance of arbitrageur hypothesis, where there is
a pressure effect on share price of the acquiring company when equity is used, due to
activities of arbitrageurs. Equity signalling hypothesis, as reported by Myers & Majluf
(1984), is behind their observations of equity issuing firms reporting a loss, due to a
signalling that the market has overvalued the assets. This is supported by Travlos
(1987), who observed that equity issuing firms generate poor returns. There is much
evidence to suggest that cash financed acquisitions generate more positive returns.
As previously mentioned, mergers, or to be more precise, merger waves, generally
follow an increase in stock valuation, and that this increase could indeed be an
overvaluation. If this is the case, then perhaps the loss experienced by companies
using equity to finance a takeover is not an effect of the merger, but an effect of the
market correcting the overvaluation. EMH is assumed to immediate, however, as we
have seen by previous results (Parkinson & Dobbins 1993), the market an be slow to
react to information. Therefore it may be fair to suggest that the loss experienced post
announcement is an effect of the lag in the efficiency of the market, rather than the
event of the merger.

_____________________________________________________________________
By using stock then, managers are using a proportion of funds that do not really exist
as they are the overvalued part of the share price. By doing this, they are in effect
creating value for the company, as they are parting with theoretical value rather than
actual cash. This is similar to getting something for nothing. Although shareholders
experience a loss in wealth due to the Shareprice decreasing, it is more of a
Table 4: Previous Payment Method Results Summary
Researcher
Sample Size / Year
UK
US
Bidder/
Target
Event
Window
Result
B (T)
Period Comment
Franks et al (1991)
399 / 1975 – 1984
US B & T -5 to +5
Days
All -1.02%
C +0.83%
Eq -3.15%
Daily
Dodds & Queck (1985)
70 / 1974 - 1976
UK B Month
Announced
-1.49% Monthly
Travlos (1987)
167 / 1972 - 1981
US B -5 to +5
Days
C More +ve
E More -ve
Daily
Sudarsanam & Mahate
(2003)
519 / 1983 - 1995
UK B -1 to +1 -1.43% Daily Various
Benchmarks
(Size Adjusted
shown)
Note on Abbreviations: C is for Cash Payment; Eq is for Equity Payment
correction, and a return to a more real value. The company has also acquired a new
company, and has experienced growth, which could assist in the survival of the new
entity. Therefore, a long term gain may be felt by the shareholders, due to effects of
synergy.
2.2.5. Formulation of Hypotheses
From the empirical evidence, a number of hypotheses have been formulated, and
summarised below.
H1. M&A’s during periods of low activity should result in a more
significant increase in shareholder wealth, as mergers should be more
strategically, and less glamour or utility-orientated.

_____________________________________________________________________
M&A’s occurring during periods of high activity should result in a
more significant decrease in shareholder wealth, as mergers should be
more glamour or utility-orientated, and less strategically-orientated.
H2. M&A’s concerning small size firms should generate a more positive
increase in shareholder wealth, as smaller companies are less able to
pay large amounts for acquisitions and in turn over pay less. Managers
in small size firms are more geared towards shareholders expectations.
M&A’s concerning large sized firms should generate a greater
decrease in shareholder wealth. This is due to the facts that larger
companies are able to pay more for acquisitions, and in turn over pay
more. Elements of managerial motives and empire building also
suggest that shareholders interests are not put first.
H3. M&A’s with cash as the major payment method should generate a
more positive increase in shareholder wealth, as this payment method
signals confidence to the market, ownership does not become diluted,
and tax benefits are generated.
M&A’s with equity as the major payment method should generate a
greater decrease in shareholder wealth, as this payment method signals
a lack of confidence to the market, and a dilution in ownership.
H4. A combination of Small firm size and low merger activity should
produce smaller losses or larger gains than a combination of a large
firm in a period of high activity..
H5. A combination of cash payment method and low merger activity
should produce more positive gains than a period of equity payment
method and high activity.

_____________________________________________________________________
H6. A combination of small firm size and cash payment method should
produce a more positive gain than a small firm size with equity as
payment method
H7. A combination of a large firm size and cash payment method should
produce less of a loss than a combination of a large firm size and
equity payment method
H8. A combination of low M&A activity, small firm size and cash financed
should produce the most positive and returns.
A combination of high M&A activity, large firm size and equity
financed should produce the most negative returns.

Chapter 3: Methodology & Data Sample
_____________________________________________________________________
Chapter 3:
Methodology & Data Sample
3.1. Data and Sample
A selection of 74 companies has been selected from Thomson Data Stream from the
years 1992 and 2000. These years have been selected as 1992 is a year of relatively
low merger activity, and the year 2000 is a period of relatively high merger activity
(Arnold, 2004). The sample for 1992 contains only 29 companies, which may lead to
the results being insignificant.
The next stage is to identify which companies are to be classified as large, and which
ones as small. The criteria for this separation are the market value (MV) of the
company at the announcement date. A company will be deemed to be classed as small
if their MV is below £800 million and large if their MV is above this figure. This
figure has been selected as it appears to be a point at which no companies are
particularly close to this value.
The next step is to separate the companies in terms of payment method. Fortunately,
the companies in this sample are either 100% cash or 100% equity financed.
Finally, the primary event window to be used will be -1 to +1 days. This has been
used a standard window, and captures the 3 days surrounding the event day zero.
Various rsearchers ahave used this window including Sudasanam & Mahate (2003).

_____________________________________________________________________
Table 5: Number of Companies in each Sub-Group
NUMBER OF COMPANIES
Group All Years 1992 2000
All 74 29 45
Small 49 24 25
Large 25 5 20
Cash 45 12 33
Equity 29 17 12
Small & Cash 28 9 19
Small & Equity 21 15 6
Large & Cash 17 3 14
Large & Equity 8 2 6
3.2. Justification of Methodology
The change in shareholder wealth is to be measured using the standard event study
methodology. This is because it uses share price returns and is a favourite method
among various researchers such as Fama et al (1969).
This methodology is effective when employed under the Efficient Market Hypothesis,
as it can measure the reaction of the market to within days of the event. Accounting
based methodologies such as Ratio Analysis fall under criticism as they can be subject
to manipulation. This causes problems when interpreting the results, which can
potentially be inaccurate. Therefore, the event study methodology results are more
reliable, as it is less possible to manipulate share prices (Binder 1985).
According to EMH, any new information should be immediately incorporated by the
market, and the share price adjusted accordingly. Therefore, the information on a
merger, which may cause abnormal changes to share price should be immediately
corrected to show zero abnormal returns (Ibid). The Event Study Methodology
measures this by calculating Abnormal Returns around the event.
The first step is to collect the share price information of the sample. The share prices
will be collected from Thomson Data Stream, and the information on the market
index will be collected from the FTSE ALL SHARE. This will also be gathered using
Thomson Data Stream.
The event period will then be identified. This will be two hundred and ninety-one
days before to forty days after. The announcement day will be identified from this

_____________________________________________________________________
information and the observations will be grouped into common event time (t = 0),
from t = -291 to t = 40, where the announcement day will be time t.
The first step is to group the observations into common event time t = 0. This is done
by finding the announcement day and marking it as t = 0. Information of t = -291
through to t = 40 is then collected.
The second step is to calculate the actual returns to the company. There are two
methods of calculating this, namely the Discrete Returns and Logarithmic Returns.
Logarithmic Returns are sometimes preferred to Discrete Returns as they are more
likely to be normally distributed, and they are easy to accumulate. However, for the
purpose of this event study, the actual returns experienced by the shareholder are
required. Therefore, the Discrete Returns Method will be used. The equation for the
discrete returns is:
(1)
1,
1,,,
,
−
−−+
=
ti
tititi
ti
P
PDP
R
The return on the market index is calculated in the same way; using the FTSE ALL
share price index.
The next step is to calculate the expected return. In order to do calculate the expected
return, the actual returns are first calculated for a period before the event. A
regression is then run using the control benchmark, and the expected returns are
calculated. There are several available to choose from, each with its own merits.
Different researchers have used different benchmarks, or a variety of them in their
studies. Each benchmark will produce different results, but on the whole, the
difference in results will be marginal (Dyckman et al 1984)
For the purpose of this paper, a period of -290 days to -41 days will be used. This
period is presumably unaffected by any leaks of information to the market.

_____________________________________________________________________
The market model has many positive reasons to be selected. It produces a smaller
variance of Abnormal Returns meaning that the statistical tests are more powerful.
The smaller correlation across abnormal returns provides for uniformity to the
statistical tests. However, the small form effect has a significant impact on the model
(Ibid).
The problem of thin trading can occur. This thin-trading, or non-synchronous trading,
occurs when the closing share price at the end of the day’s trading relates to a
transaction before that day. As a result of this, downward bias of the Beta and an
upward bias of the estimation of abnormal returns is experienced. There are several
methods for correcting this bias. They include the Scholes and William’s procedure,
the Dimson Aggregate Coefficients Method and the Fowler and Rourke procedure.
For the purpose of this paper, due to time restraints, a control for thin trading will not
be included.
The market adjusted model is only useful if the average of the companies’ Betas are
close to one. This model is also affected by the size affect problem.
The Capital Asset Pricing Model (CAPM) is rarely used, as it produces no real
benefits over the previous models, yet requires more information input to be
calculated. It has been used as a comparable model in several papers including
Dimson and Marsh 1985.
The Mean Adjusted Model helps to reduce some size-effect bias problems. Its major
flaw is in the assumption of a constant Beta and risk premium over the long run
period (Kennedy and Limmack 1996; Limmack 1993; Chan et al 1985).
More complex models have been developed that use multiple factors. These include
the Fama & French (1996) Multi-index Model. However, the differences in results
appear to be minimal.
Due to several factors, including time restrictions, and compatibility with significant
testing, the control benchmark to be used will be the market model.

_____________________________________________________________________
(2) ( ) titmiiti RRE ,,, εβα ++=
The next step is to calculate the abnormal Returns. To do this, the following equation
is used:
(3) ( )ititit RERAR −=
Where:
itAR : Abnormal Return of firm i on day t
itR : Actual Return of firm i on day t
( )itRE : Expected Return of firm i on day t
Following this, the Abnormal Returns are then summated to form the Average
Abnormal Returns of the sample group. The equation used for this is:
(4) ∑=
=
N
i
itt ARAAR
1
Finally, the Average Abnormal Returns are then accumulated over each of the event
windows (-1 to +1; -5 to +5; -10 to +10; -40 to +40; -10 to -1; 0 to +1; 0 to +5) to give
the Cumulative Average Abnormal Returns. This is done using the following
equation:
(5) ∑=
=
T
i
tT AARCAAR
1
The CAARS will then be put through one sample T test using SPSS. This two-tailed
test will calculate the significance of the means. SPSS will be used as it is readily
available and preferred for its simplicity. From the T-Test, as well as the level of
significance, the standard errors will also be calculated

Chapter 4: Results
_____________________________________________________________________
Chapter 4:
Results
This Chapter reports the results from the event study. It has been broken down into
several sections, concentrating on each of the sub-groups of companies. The main
focus is on the 3-day event window of -1 to +1 days, with comments and analysis also
on the other windows examined.
4.1. Group 1: All Companies
As can be seen from Table 6, the majority of the results for each of the event windows
in the all years, and 1992 (low activity) were negative returns to the acquiring
company. However, the returns t the year 2000 figures (high activity), show some
positive returns.
The 3-day event window of -1 to +1 days produced an overall return of -2.13% for the
sample. This compliments results from Gregory (1997) with -3.00%, and Sudarsanam
et al (1996) with -4.04%. When examining the period -10 to -1 days, it can be seen
that a positive result was achieved, albeit a small gain of a mere 0.04% increase. The
period of 0 to +1 days however, produces a negative effect of -1.76%, which more
than cancels out the gain. It is also worth noting that the period of 0 to +5 days
produces a smaller loss, meaning the loss experienced over days +2 through +5 were
smaller than the period of 0 to +1.
This may be seen to be consistent with the theory of Efficient Market Hypothesis, as
the gains achieved before the announcement day were corrected after the day, and the
effect continued to be reduced. This lag in correction compliments the findings of
Parkinson & Dobbins (1993). This small loss is statistically insignificant.
For the period of -40 to +40 days, through all years, the loss was a massive -9.46%.
This loss is significant at the 1&% level. Similar losses of -9.66% and -9.34% were

Chapter 4: Results
_____________________________________________________________________
Table 6: CAAR All Companies
CAAR All Companies
Event
Window All Years 1992 2000
-1 to +1 -0.021279 -0.035705 -0.011982
-5 to +5 -0.015293 -0.049937* 0.007033
-10 to +10 -0.011991 -0.040193 0.006183
-40 to +40 -0.094649*** -0.096553** -0.093423**
-10 to -1 0.000449 -0.008532 0.006236
0 to +1 -0.017640 -0.032755 -0.007900
0 to +5 -0.010260 -0.032739 0.004227
Significance at *10%; **5%; ***1% Levels
felt for the years 1992 and 2000 respectively. Both of these years showed a
significance at the 5% level.
In 1992, the year of low M&A activity, in the period of 1 to +1 days, a slightly larger
loss of -3.57% was observed. This loss is closer to the findings of Gregory (1997)
than the overall group loss from both years. However, in the year 2000, the year of
high M&A activity, a loss was again observed, but this was smaller than the loss in
1992, at just -1.19%. This loss is consistent with Agrawal et al (1992), who observed
a negative result of -1.53%.
In 1992, losses were observed for all of the event windows. With the exception of the
-5 to +5 days window loss of -4.99% at a level of 10% significance, and the -40 to
+40 window at 5% significance, all other observation were insignificant. These
negative results are consistent with Hubris Hypothesis, and discredit EMH
The year 2000 observations were a mixture of positive and negative results. While the
windows of -1 to +1 days and 0 to +1 days both showed insignificant negative effects
at -1.19% and -0.79% respectively, the period of -10 to -1 days showed a small gain
of 0.63%. This result was insignificant however. The positive results observed are
small at less than 1%, and statistically insignificant.
These results are unexpected when examining the literature in Merger Waves. From
this literature, I hypothesised that the effect of a merger in a year of high activity
would produce a greater loss than for a merger in the year of low activity. When

Chapter 4: Results
_____________________________________________________________________
Graph 1: CAAR All Companies -10 to +10 Days
-0.03
-0.02
-0.01
0
0.01
0.02
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
examining all of the event windows of the year 2000, it can be seen that the losses
were smaller than all of the equivalent 1992 windows. The results of the period -10 to
+10 days can be seen in Graph 1.
When examining Graph 1, we can see that on Day Zero, all years experienced a
negative return, with 1992 showing the most negative compared to 2000 showing the
least. Year 2000 results show that they made a faster recovery and showed positive
returns on day +3, compared to 1992 taking until day +4 to show a positive abnormal
return. Results appear to look positively correlated on the whole, although the level of
that correlation is unknown due to no co-efficient tests being carried out.
With the exception of the window -40 to +40 days, all of the results for the year 2000
were statistically insignificant. In the year 1992, just two event windows showed
significance. Overall, the most significant results were the -40 to +40 days, with
negative results of around -9.5%. The T tests (Appendix VIII) show that the window
-40 to +40 days results were all around -2 standard deviations from the mean. It can
also be seen from Appendix VII, that the standard error was considerably small at
around 0.0005 for each year.
Overall for this sub group, it can be seen that for all years combined, the results appar
to be negative. This shows that Hubris is a likely explanation, although other
synergies may have been achieved. However, with the share price information alone,

Chapter 4: Results
_____________________________________________________________________
a measure of these synergies is not possible. For the year of low merger activity,
again, negative results are experienced.
The surprising result is that in the period of high activity, the results were either less
negative, or they were positive. For the year of 1992 then, it may also be true that
Hubris is the explanation behind the mergers. Whereas for the year 2000, the
shareholders best interests may well have been at heart. This again goes against
Merger Cycle expectations of a period of higher activity showing negative results
over a period of lower activity, as experienced by Moeller et al (2005). However, the
majority of these results show no significance, with the only significant result for
2000 being the -40 to +40 days window. Perhaps Disciplinary, or Neo-Classical
Theory can explain these results best, as they show that in 2000, shareholder wealth
was increased.
4.2. Group 2: Size Effect
This group has again been divided into two sub groups of small sized firms and large
sized firms. Both will be examined and compared with each other.
4.2.1. Small Firm Size
The Event window of -1 to +1 days for all years shows a negative result of -1.52%,
and a 10% level of significance. All of the event widows for the combined years show
negative results, with the windows of -40 to +40 days and 0 to +1 days showing
significance at the 1% level. Another massive loss, of -13.06% was observed at -40 to
+40 days, suggesting either an early leak of information, or delayed losses. Although
it is possible some unrelated event happened to cause these losses, it is unlikely that
an unrelated event happened throughout all of the years within the 80 day period of
the announcement date. The 1% level of significance loss of -1.31% experienced at
the 0 to +1 days window shows again that the market may be slow to adjust, and that
perhaps Hubris or another non-shareholder wealth enhancing theory could best
explain the results.
When examining the year 1992, it can be seen that a larger negative return of -3.51%
occurred in the -1 to +1 day window. Similar levels of negative returns were
experienced throughout this year, with the period of 0 to +1 day showing a larger loss

Chapter 4: Results
_____________________________________________________________________
Table 7: CAAR Small Sized Firms
CAAR Small Size
Event
-1 to +1 -0.015231* -0.035085 0.003828
-5 to +5 -0.008294 -0.053522** 0.035125*
-10 to +10 -0.010252 -0.039378 0.017709
-40 to +40 -0.130614*** -0.111096** -0.149351***
-10 to -1 -0.001943 -0.008268 0.004130
0 to +1 -0.013083*** -0.031793 0.004877
0 to +5 -0.001773 -0.035768 0.030863
of -3.18% than the pre-announcement period of -10 to -1 days at -0.83%. However,
neither of these results were significant. The period of -40 to +40 days showed a
negative return of -11.11% with 5% significance. These results are consistent with
Dimson & Marsh (1985) who also experience negative results. This is the only
window where the year of low activity produced more positive returns than the year
of high activity.
The year of high activity again outperformed the year of low activity for increasing
shareholder wealth. Positive returns were experienced throughout, with the exception
of the -40 to +40 days window. At the -1 to +1 window, a gain of 3.83% was
achieved, and a larger gain 4.88%at the 0 to +1 period. These positive results are
consistent with the positive gains reported by Moeller et al (2004). However, the
observations yet again go against the Hypothesis that the year of low activity would
experience more positive gains than the year of high activity.
When examining the t test, it can be seen that for the combined years, the period of -1
to +1 days lies outside of -3 standard deviations from the mean (Appendix VIII ). The
most shocking result is the window of 0 to +1, which shows the result to be an
unbelievable -531 standard deviations from the mean. Upon re-running this test time
over, the same result is experienced. I can not offer any explanation to the severity of
this result. The Significance is also at the 1% level, and the standard error is at
0.00001, showing that much of the abnormalities have been explained by the small
firm-size effect.

Chapter 4: Results
_____________________________________________________________________
Graph 2: CAAR Small Size -10 to +10 Days
-0.03
-0.02
-0.01
0
0.01
0.02
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
Graph 3: CAAR Large Size -10 to +10 Days
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
When examining the Graph 2, it can be seen that from day -6, 1992 experienced
negative returns, that hit the lowest point at day zero. Positive abnormal returns were
not observed until day four. The year 2000 experienced mixed observations, with a
positive abnormal return experienced on day zero. The level of correlation is again
unknown, but by examining the graph, it can be seen that all results follow a similar
path.
These results again show that the efficiency of the market has been questioned. They
also show disregard for the hypothesis that mergers in a period of low activity will
show more positive gains than a merger in a period of high activity.

Chapter 4: Results
_____________________________________________________________________
Table 8: CAAR Large Sized Firms
CAAR Large Size
Event Window All Years 1992 2000
-1 to +1 -0.033133 -0.038683 -0.031746
-5 to +5 -0.029012 -0.032728 -0.028082
-10 to +10 -0.015400 -0.044103 -0.008225
-40 to +40 -0.024159 -0.026746 -0.023512
-10 to -1 0.005136 -0.009798 0.008869
0 to +1 -0.026570 -0.037371 -0.023870
0 to +5 -0.026893 -0.018199 -0.029067
4.2.2. Large Firm Size
For the large sized firm, it can be seen that for all of the event windows, with the
exception of -10 to -1 for 1992 and 2000, losses were observed. However, none of
these losses were significant. For the window of -1 to +1 days, negative returns of
over 3% were observed, with 1992 again showing heavier losses than 2000.
The period of -10 to +10 days shows positive results of 0.51% overall, with -0.98%
for 1992 and a gain of 0.89% for 2000. This suggests that due to the small losses, a
possible error in calculation was made on behalf of the management rather than any
Hubris, as the loss was made in the year of low activity. However, because the firm is
a large size, it may be assumed that the management were willing to overpay.
In the window of 0 to +1 days, negative returns are observed, with -2.66% for the
combined years, -3.74% for 1992, and -2.39% for 2000. For the period of -40 to +40
days, the severity of the negative returns is much less than that of the complete sample
group, or the group of small size companies.
When examining the Graph 3, it can be seen that large negative returns were
experienced on the announcement day, with the biggest loss being suffered in 1992.
After the announcement day, 2000 experiences returns closer to zero than 1992, with
2000 experiencing more positive returns again than 1992 from day 6 onwards.
The Hypothesis that firms in a period of high activity will make greater losses is again
not supported by the results. However, the sample size is reduced, with 1992 being
under 30 companies, which is a benchmark for significance testing.

Chapter 4: Results
_____________________________________________________________________
4.2.3. Comparing Small Size with Large Size Performance
Overall, for the combined years, the small sized companies achieve more less
negative results than do the large size firms. For the combined years, only the event
window of -40 to +40 days shows the small sized firms producing a more negative
result. This is complimentary of the hypothesis H2, that small size firms will produce
more positive results than large size firms.
For the year of 1992, the small size firms produce a less negative result for four out of
the seven event windows, namely -1 to +1, -10 to +10, -10 to -1 and 0 to +1 days.
This is again consistent with the hypothesis that small sized firms will outperform
large sized firms.
For the year 2000, the small sized firms produced positive gains with the exception of
-40 to +40 days, compared to the large sized firms producing negative results, with
the exception of -10 to +10 days. These two event windows are the only times when
the large sized companies produce a more positive return than the small sized
companies. These results support hypothesis H3.
However, the large sized firms produce a smaller loss in the period of high activity
than the small sized firms produce in the year of low activity. This does not bode well
with the hypothesis H4, that larger firms in periods of high activity should generate
more negative observations than small sized firms in periods of low activity.
On a whole for both sub groups, the period of high activity produced more positive
returns than the period of low activity. This is not supportive of the hypothesis H1.
The combination of positive and negative abnormal returns also suggests that the
market may not be as efficient as EMH would suggest. The Negative results also
suggest Hubris, whereas the positive results seem to be consistent with Neo-classical
theory.

Chapter 4: Results
_____________________________________________________________________
Table 9: CAAR Cash payment method
CAAR Cash Payment
-1 to +1 -0.014404** -0.008606 -0.016514
-5 to +5 0.001941 -0.017245 0.008918
-10 to +10 0.019654 -0.009788 0.030361
-40 to +40 -0.042934 -0.072046 -0.032347
-10 to -1 0.014530 0.007539 0.017072
0 to +1 -0.010413 -0.005422 -0.012228
0 to +5 -0.000963 -0.012723 0.003313
significance at *10%; **5%; ***1% Levels
4.3. Payment Method
AS with the previous group, the two types of payment method will be examined
independently, and then compared with each other.
4.3.1. Cash Payment
From examining Table 8 above, we can see that during the event window of -1 to +1
days, all years combined experienced a negative return. For the combined years, this
return was -1.44%, with significance at the 5% level. This result is contradictory of
Franks et al (1991) who found that cash payments produced a positive gain of 0.83%.
However, Dodds & Queck (1985) found that cash produced results of -1.92%,
whereas equity financed mergers produced returns of 0.78%. The result for 1992 is
also negative at -0.86%, and a smaller loss than the year 2000 -1.65%, complimenting
the hypothesis H1. The small loss in 1992 appears to be consistent with EMH,
however, when examining the Graph 4, it is clear that the abnormal returns from day
to day are sporadic, moving from negative to positive. Both results are not consistent
with theories of mergers being value preserving or enhancing.
The window of -10 to -1 produces positive results for all three years, with 2000
making the most positive gain of 1.71%, compared to just 0.75% of 1992. This
contradicts the hypothesis H1, but shows that in 1992, the market appears to be more
efficient. Neo-classical theory could be used to explain these results, as they show a
positive effect for the wealth of the shareholder.
The window of 0 to +1 days shows an extremely small loss of -0.09% for the
combined years, which again suggests the market is efficient. In 2000, the loss is

Chapter 4: Results
_____________________________________________________________________
Graph 4: CAAR Cash Payment -10 to +10 Days
-0.02
-0.015
-0.01
-0.005
0
0.005
0.01
0.015
0.02
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
Graph 5: CAAR Equity Payment -10 to +10 Days
-0.06
-0.05
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
slightly larger at -1.22%. When again examining the Graph 4, it is clear that neither
share price returns to a smooth pattern, nor were they running along the smooth
pattern of expected returns up to -10 days before. While the 2000 and combined years
see a negative return on day zero, the 1992 prices increase to over 1%, then drop to
over 1.5%. For the majority of the event windows, excluding -1 to +1 and 0 to +1
days, the year 2000 returns were more positive than those of the 1992 returns. On a
whole this is contradictory of hypothesis H1, but the two exceptions are the most
important observations, showing that H1 is complimentary with these results. All
results except the All years -1 to +1 days were insignificant.

Chapter 4: Results
_____________________________________________________________________
Table 10: CAAR Equity Payment Method
CAAR Equity Payment
Event
-1 to +1 -0.031946 -0.054834 0.000478
-5 to +5 -0.042036 -0.073014 0.001851
-10 to +10 -0.061097* -0.061655 -0.060307
-40 to +40 -0.174898*** -0.113852* -0.261381**
-10 to -1 -0.021402 -0.019876 -0.023563
0 to +1 -0.028854 -0.052048 0.004005
0 to +5 -0.024685 -0.046868 0.006742
4.3.2. Equity Payment
For the window of -1 to +1 days, an overall loss of -3.19% was observed. This is
complimentary of the results observe by Franks et al (1991), who observed -3.15% for
equity financed mergers. When examining the sub periods however, 1992 made a
greater loss of -5.48%, and 2000 made a gain of just 0.04%. Whereas the 2000 figure
suggests efficiency in the market, the 1992 figure does not. From examining the
Graph 5, it can be seen that while 2000 prices rose at day zero before shifting between
positive and negative returns, the 1992 prices fell to -5% on the announcement day,
and continued to remain negative until day 3. The gain observed in the 2000 share
prices again contradicts the hypothesis H1.
The period -10 to +10 shoed a loss of around -6% for all three sub periods, with the
combined years achieving significance at the 10% level. For the window of -40 to
+40, all three sub periods again experienced losses. The combined years achieved
significance at the 1% level with a massive loss of -17.49%, the year 1992
experienced a loss of -11.39% at a significance level of 10% and the year 2000
showed losses of a massive -26.14% and a level of 5% significance. The losses over
this period seriously contradict EMH.
For the event window 0 to +1 days, 1992 reports a loss of -5.20%, compared to the
gain of 0.40% in 2000. These results again contradict the hypothesis H1. All of the
results are negative, save four event windows in the year 2000. This may suggest
Hubris in 1992, although the small insignificant gains in 2000 do not necessarily
suggest Synergy or Neo-classical theory.

Chapter 4: Results
_____________________________________________________________________
4.3.3. Comparing Cash with Equity Performance.
Overall, for all combined years, the cash payment method produces less negative
results than the equity financed mergers, supporting hypothesis H3. The same is true
for the sample from 1992, where all results are again negative, and the cash payment
method observations are less negative, again supporting hypothesis H3. However, for
the year 2000, the same is not always true. Cash produces less negative or more
positive results than equity for the event windows of -5 to +5 days, and for -40 to +40
days. For the other event windows, equity outperforms cash as a payment method,
contradictory to hypothesis H3.
The more positive observations in the year 2000 show that a combination of equity
payment and high activity produce more positive gains than a combination of cash
payment method and high activity. It is not true that cash payment method and low
activity produce larger positive gains than a combination of equity payment method
and high activity. This is contradictory to hypothesis H5.
Thin trading may be responsible for the dramatic results of the event window -40 to
+40 days, as there was no control applied to the control benchmark. Overall, cash
payment has outperformed equity payment method. This is complimentary of results
from Travlos (1987) and Sudarsanam et al (2003) who found cash produced positive,
while equity produced negative observations.
4.4. Group 4: Small Firm Size with Payment Method.
Small firm size will first be analysed with cash as a payment method, and then with
equity as a payment method. Finally, they will both be compared.
4.4.1. Small Firm Size with Cash Payment Method
For the window -1 to +1 days, it can be seen that in the combined years a small
insignificant loss of -0.07% was made. In 1992, there was again a loss, but much
larger at -1.00%. However, in the year 2000, there was a small insignificant gain of
0.37%. This contradicts Hypothesis H1 yet again, as well as hypotheses H6 andH8,
whereby a combination of low activity along with cash payment and small firm size

Chapter 4: Results
_____________________________________________________________________
Table 11: CARR Small Size with Cash Payment Method
CAAR Small & Cash
-1 to +1 -0.000712 -0.010001 0.003687
-5 to +5 0.019493 -0.020593 0.038481
-10 to +10 0.034133* -0.010226 0.055145**
-40 to +40 -0.042281 -0.072576 -0.027931
-10 to -1 0.003427 0.010503 0.000075
0 to +1 -0.001132 -0.007248 0.001766
0 to +5 0.018868 -0.019907 0.037235
should produce the smallest loss or most positive gains, as the high activity year
produces the highest returns. All results are insignificant however, and by now the
sample size is considerably reduced to below 30 companies per sample, further
reducing the significance.
The period of -10 to -1 days provides positive observations for all year combinations
in this sub group. The 1992 observations show a higher return at 1.05% as compared
to 0.007% returns of 2000. The 2000 returns a complimentary with EMH as the gain
is so small. Overall for this event window, a gain of 3.43% is achieved. This also
supports hypotheses H1, H6 and H8, as well as Synergy Theory, or perhaps
Disciplinary.
For the event window 0 to +1 days, while a negative result is observed for 1992 at an
insignificant -0.72%, a positive gain is observed in 2000, with a small insignificant
0.18%. These results are both small and support EMH as well as Disciplinary Theory.
The Hypotheses of H1, H6 and H8 are not supported however.
In the event window -10 to +10, the All Years result shows a positive gain of 3.41%,
which is significant at the 10% level. Where as there is a small insignificant gain for
this window in 1992, there is a significant gain at the 1% level of 5.51%. This is a
large gain, and contradicts EMH, as well as the hypotheses H1, H6 and H8.
When examining Graph 6, it can be seen that all years make a gain on day zero
following a loss, which is then followed by a small positive gain at day +1. This is as
expected from Neo Classical theory, and Disciplinary Theory.

Chapter 4: Results
_____________________________________________________________________
Graph 6: CAAR Small & Cash -10 to +10 Days
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
Graph 7: CAAR Small & Equity
-0.12
-0.1
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
4.4.2. Small Firm Size with Equity payment Method
As with the small firm size and cash payment method results, the observations here
for the window of -1 to +1 days produces negative returns overall and for 1992, but
positive returns for the year 2000. The negative return for combined years is -3.46%,
which is reasonably higher than zero, again questioning the EMH. The even higher
loss of -5.01% in 1992 is again contradictory to EMH. The 2000 sample shows a
small positive gain of 0.42%. Moeller et al found that small firm size combined with
equity produced a positive gain of 2.02% over the 3-day window of -1 to +1 days, so
these results are not particularly aligned with their results. As can be seen from Graph
7, in 1992, day zero produced a negative return of around 4%, in 200 the return was
over 2% positive. These results do not conform with hypotheses H1, H7 or H8.

Chapter 4: Results
_____________________________________________________________________
Table 12: CAAR Small Firm Size with Equity payment Method
CAAR Small & Equity
Event
-1 to +1 -0.034590 -0.050135 0.004274
-5 to +5 -0.045344 -0.073281 0.024500
-10 to +10 -0.069432* -0.056870 -0.100840
-40 to +40 -0.248392*** -0.134208** -0.533852***
-10 to -1 -0.009102 -0.019531 0.016971
0 to +1 -0.029020 -0.046520 0.014728
0 to +5 -0.029294 -0.045285 0.010684
The results of the period -1 to +1 are not statistically significant however, but show a
possible reasoning for Hubris.
For the event window -10 to -1 days, negative returns are again observed for
combined years and for 1992. The combined years show a loss of -0.09%, whereas
1992 shows a loss of -1.95%. The year of high activity however shows a gain of
1.69%. This again is contradictory to hypotheses H1, H7 and H8. The window of 0 to
+1 days shows that as with the period of -1 to +1 days, the higher activity period
produces a more positive gain of around 1% These results could be as a result of
Hubris for 1992 and Disciplinary or Neo-Classical Theory for the year 2000.
Interestingly, in the period of -10 to +10 days, all years combined show a loss of -
6.94% which is significant at the 10% level. The year 1992 shows a smaller
insignificant loss of -5.69%, but the year 200 shows the greatest loss of -10.08%. This
could be due to the massive loss of almost 10% on day +8, which may or may not be
a result of thin trading.
Event window of -40 to +40 days show some significantly negative results. For the
combined years, the result is -24.84%, and significant at the 1% level. For 1992, the
observation is a smaller -13.42%, with a less significant 5% level. However, for the
year 2000, the result is a massive loss of -53.39%, with significance at the 1% level.
This clearly shows either a massive error of judgement, or more than likely Hubris as
the explanation for the result, as well as contradicting EMH.

Chapter 4: Results
_____________________________________________________________________
4.4.3. Comparing Small Size & Cash with Small Size & Equity Performance
When examining the event window of -1 to +1, the small size with cash produces
considerably less negative returns in both the combined years and in 1992 than the
small size with equity as the payment method. In the combined years, the return for
the small size and cash is -0.07% compared to the equity financed equivalent of -
3.45%. In 1992, the observations are -1.00% for cash and -5.01% for equity. This
shows that for these sub-time periods, the small size paired with cash produces less
negative results. Although the returns generated in the hear 2000 are a positive 3.68%
for cash, and a higher gain of 4.27% for equity, this is only 0.05% higher. All of these
figures are insignificant. The results show that the period of higher activity produces
higher positive gains, which is contradictory to the Hypothesis H1. The Higher
positive gains of cash compared to equity compliment hypotheses H7 and H8, and the
large positive and negative gains overall again contradict EMH.
For the window of -10 to -1 days, cash payment method produced small positive gains
in combined years and 1992, whereas equity payment produced small negative
returns. This supports Hypothesis H7 and H8. However, in the year 2000, the cash
financed small companies produced a mere 0.0075% gain, compared to the 2000
companies’ 1.69% gain. This shows that H1 is not supported.
Finally for the event window of 0 to +1, equity payment produced a larger loss for the
combined years and 1992, when compared to the cash payment, again complimenting
hypotheses H7 and H8. However, in the year 2000 sample, equity again produced a
higher gain in comparison. This does not support Hypothesis H1.
All together, this sub group supports Hubris hypothesis for combined years and
periods of low activity, and Disciplinary for periods of high activity. Cash
outperformed equity for increasing shareholder wealth, with the exception of the year
2000 sample. The results were inconsistent with EMH.
4.5. Group 5: Large Sized Firms with Payment Method
The combination of small sized firms with cash will first be addressed, then small size
with equity. Finally they will be compared and contrasted with one another.

Chapter 4: Results
_____________________________________________________________________
Table 13: CAAR Large Firm Size with Cash Payment Method
CAAR Large & Cash
-1 to +1 -0.032942 -0.004422 -0.039053
-5 to +5 -0.020100 -0.007204 -0.022863
-10 to +10 -0.001171 -0.008476 0.000394
-40 to +40 -0.049651 -0.070454 -0.044675
-10 to -1 0.014717 -0.001353 0.018160
0 to +1 -0.022003 0.000058 -0.026730
0 to +5 -0.026005 0.008828 -0.033469
4.5.1. Large Size with Cash Payment
The event window of -1 to +1 days produced negative observations throughout all the
year groups. In 1992, the year of low activity, the return was much less negative at
just -0.04%, compared to the -3.91% experienced in the year 2000. This is
complimentary with Hypothesis H1 that a year of low activity will produce less
negative gains than a year of high activity. The results produced are not expected
when examining Moeller et al (2004), who found that a large firm using cash
produced a positive return of 0.69%. The negative observations suggest Hubris, as
negative returns are expected in a year of high activity. The negative returns for 1992
could be due to valuation errors. The results generated in this study were not
statistically significant however.
For the window of -10 to -1 days, it can be seen that overall, the return produced was
a positive 1.47% for the combined years. The year of low activity produced a small
negative of -0.14%, whereas in the year 2000, the return was positive at 1.82%, which
is not expected with hypothesis H1.
Mixtures of positive and negative returns were observed for the 2-day event window
of 0 to +1 days. Overall the combined years produced a negative return of -2.20%,
1992 produced a small positive of 0.005%, and the year 200 produced a negative
return of -2.67%. The small positive return suggests that the market is efficient for the
year of low activity, but the larger negative suggests the market was less efficient in
the year of high activity.

Chapter 4: Results
_____________________________________________________________________
Graph 8: CAAR Large & Cash -10 to +10 Days
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
Graph 9: CAAR Large & Equity -10 to +10 Days
-0.03
-0.02
-0.01
0
0.01
0.02
0.03
-10 -8 -6 -4 -2 0 2 4 6 8 10
Event Day
PercentageWealth
Change(asDecimal)
All Years
1992
2000
When examining the Graph 8, it can be seen that on day zero, whilst the year 2000
returns dropped to around -3%, the 1992 returns reached a positive of around 0.5%.
The period of -2 to 0 saw negative returns for both years, whereas in the period
following day zero, sporadic positive and negative returns were observed for both.
4.5.2. Small Size with Equity Payment
Negative returns were observed for the event window of -1 to +1 days for all of the
year groupings. However the returns of the year 2000 were less negative at -0.33%,
compared to the 1992 returns of -2.84%. This observation does not support hypothesis
H1. Overall the all years combined return was a small negative at -0.98%. Moeller et
al (2004) found that for large sized firm using equity as their payment method, a

Chapter 4: Results
_____________________________________________________________________
Table 14: CAAR large Firm Size with Equity Payment Method
CAAR Large & Equity
-1 to +1 -0.009577 -0.028358 -0.003317
-5 to +5 -0.037493 -0.087575** -0.020799
-10 to +10 -0.038683 -0.095409* -0.019774
-40 to +40 -0.019016 -0.109336 0.011090
-10 to -1 -0.052949 -0.019504 -0.064098
0 to +1 -0.009450 -0.017644 -0.006719
0 to +5 -0.011103 -0.052810* 0.002800
negative return of -0.96% was observed, meaning that these results are complimentary
of their findings. All results however, were statistically insignificant.
For the window -10 to -1, all results were again negative, and insignificant. Overall,
for all years combined, a large -5.29% was observed. For 1992, a smaller -1.95% was
observed and for the year 2000, the negative return stood at -6.72%. The greater loss
in the year of higher activity is supportive of hypothesis H1. Hubris or Maximising
Management Utility may be reasons behind these losses.
The window 0 to -1 days again shows negative results, with -0.95% for all years
combined, -1.76% for 1992, and a smaller -0.67% for the year 2000. This smaller loss
for the year 2000 is not supportive of hypothesis H1, and the results suggest the
market is slow to react.
Significant results were found at the -5 t +5 window for 1992, with a loss of -8.76%
significant at the 5% level. Again for 1992, a loss of -9.54% was observed at the
window -10 to +10 days with significance at the 10% level. For the event window of
0 to +5 days, a negative observation, again in 1992, of -5.28% was observed, with
significance at the 10% level. These results suggest inefficiency in the market and
possible Maximising Management Utility or Hubris.
When examining the Graph 9, large losses are followed by large gains for all year
groupings, providing for inconclusive results. This group had he fewest number of
companies, which may account for this.

Chapter 4: Results
_____________________________________________________________________
4.5.3. Comparing Large Size & Cash with Large Size & Equity Performance
For the event window of -1 to +1 days, the combination of large size with cash
produced larger losses than the combination of large size with equity for both the
combined years, and for the year 2000. However, in 1992 the large and cash
combination produced smaller losses than the large and equity group. Due to the
smaller number of companies in the 1992 sample for this group, results prove to be
inconclusive. The hypothesis H8, which assumes that the large & cash & high activity
will produce the most negative results was not found in this event window.
In the event window of -10 to -1, the large size and equity combination produced
larger losses than the combination of large and cash for all of the year groups. This is
consistent with hypothesis H7. Hypothesis H8 was supported by these results.
The event window of 0 to +1 observed that the large and cash again produced less
negative results than the large and equity combination, which supports Hypotheses H7
and H8.

Chapter 5: Summary & Conclusions
_____________________________________________________________________
Chapter 5:
Summary & Conclusions
The Hypotheses generated at the end of the literature review have been supported in
some of the results, but not in others. Also, the Efficiency of the market has been
questioned, as has the theory behind the objectives of the mergers, be they Hubris,
Disciplinary or Synergy. Throughout the results, the primary event window of -1 to
+1 days will be the under scrutiny.
Hypothesis H1:
This Hypothesis suggested that overall, mergers during low activity should produce
lower negative returns, or higher positive returns. For the 1st
group of all companies in
the entire sample, negative returns were experienced for all of the three year
groupings. The returns for the period of low activity (1992) were more negative than
for the period of high activity (2000). This does not support this hypothesis. The
negative returns also suggest an inefficiency in the market.
The second group, concerning the effect of size, also found that the high activity
sample produced less negative returns than the low activity group, again not
supporting the hypothesis. The negative gains also brought the efficiency of the
market into doubt, and a possible reasoning of Hubris, or maximising Management
utility.
The third group, concerning payment method, found that for the cash payment
method, this hypothesis was supported. However for the equity payment method, this
hypothesis was not supported. Negative results were found for this group, with one
positive observation for the equity payment method in a year of high activity. Overall,
the results were inconclusive, however the negative return for cash payment method

_____________________________________________________________________
for combined years did achieve a 5% level of significance. This again suggests the
market is slow to react, and that Hubris may be a possible motivation.
The fourth group concerned small firm size paired with either cash or equity payment
method. For both sets of combinations, it was found that this hypothesis was not
supported. Overall for the combined years and 1992, the returns were negative, and
for the year 2000 the returns were positive. This suggests that overall the EMH is not
supported, but for years of high activity, the market is more efficient. Perhaps
Disciplinary Theory could best explain the positive results.
The fifth group, which paired large firm size with either cash or equity payment
method, provided mixed results. Te cash pairing observed that the hypothesis was
supported, but the equity paring again did not. The EMH was also not supported. The
returns were also negative, suggesting that the wealth of the shareholder was again not
the motivation.
Overall it was found that three of the groups did not support this hypothesis. Two of
the groups provided mixed results, were in both cases the cash payment method
variable supported the hypothesis, but the equity variable did not support the
hypothesis. There was no clear support for this hypothesis. It is my conlusion that
overall, this hypothesis was not supported.
The EMH was also not supported for all of the groups as returns appeared to be
largely negative throughout. However, the periods of higher activity supported the
EMH more than the periods of low activity, which was unexpected.
Hubris was considered to be the most relevant motivation for the groups.
Hypothesis H2:
This Hypothesis stated that smaller sized firms should generate more positive or less
negative returns than large sized firms, as smaller sized firms are more in touch with
the needs of the shareholder.

_____________________________________________________________________
This hypothesis was found to be supported by the observations in the second group,
for all of the sub years, particularly in the year 2000 where the small firms produced a
loss of -0.38% compared to the large firms’ -3.17%. The negative returns suggest that
the EMH is not supported by these results, and that overall, Hubris or Maximising
Management Utility may best explain the motivation.
Hypothesis H3:
This hypothesis stated that the cash payment method should generate less negative
returns than the equity payment method, as the cash payment method signals
confidence to the market.
When examining the third group, concerned with payment method, it was fund that
this hypothesis was supported by the combined years and by the year of low activity,
1992. However, the year of high activity did not support this hypothesis. The negative
return of all years combined in the cash payment method results showed a 5% level of
significance. Altogether, this hypothesis was mostly supported.
The negative returns experienced suggested that the EMH is also not supported by
this sub group, and that again, possibly Hubris could best explain the theory behind
motivation for the mergers.
Hypothesis H4:
This hypothesis stated that a combination of small firm size and low merger activity
should produce smaller losses than a large firm size in a period of high merger
activity.
This hypothesis was not supported by the results, although the difference in returns
was less than 0.4%. As hypothesis H1 was not supported, these results are not entirely
surprising. The negative results also suggest Hubris and do not support EMH.
Hypothesis H5:
This hypothesis stated that a combination of cash payment method in a period of low
merger activity should produce less negative results than a combination of equity
payment method in a period of high merger activity.

_____________________________________________________________________
This hypothesis was also not supported, as the period of high activity with cash
produced a small gain, compared to the period of low activity with equity which
produced a small loss.
Theses sub groups supported EMH, as the gains and losses were so small. A
motivation for the mergers may fall in the category of Hubris, as they appear to be
more of a judgement of error.
Hypothesis H6:
This hypothesis theorised that a combination of small firm size with cash would
generate smaller losses than a combination of small firm size with equity as payment
method.
This hypothesis was supported for the combined years, 1992, and for the year 2000.
Negative results were generated for all but one year, namely the small size with cash
combination in the year 2000, which produced a small positive gain. All together,
EMH was not supported by this sub group, and Hubris may best explain some of the
results.
Hypothesis H7:
Within this hypothesis, it was predicted that the combination of large firm size with
cash should produce smaller losses than a combination of large firm size equity as the
payment method.
This hypothesis was supported for the combined years, and for the year 1992, but not
for the year 2000. Overall, this hypothesis was not supported. Negative observations
also do not support EMH, and mat suggest Hubris yet again as the motivation.
Hypothesis H8:
This hypothesis stated that the combination of small firm size with cash payment
method in a period of low merger activity should produce less negative results than a
combination of large firm size with equity payment method in a period of high merger
activity.

_____________________________________________________________________
This hypothesis was not supported by the observations. The results were negative, and
insignificant. The results also do not support EMH, and suggest Hubris as an
explanation.
In Conclusion:
In total, just three of the Hypotheses were supported, namely H2, H3 and H6. The
hypotheses of H1, H4, H5, H7 and H8 were not supported by the results. The small
sample size may have corrupted the results, as for some sub-groups there were as few
as 3 companies from 1992, and a dozen or so from the year 2000. Thin Trading may
have caused some of the large deviations from the mean, explaining some of the large
drops, or large gains in share price on some of the event days, as no control was used
for thin trading. More often than not, negative results were found. The Efficient
Market Hypothesis was not supported, and it was found that Hubris Hypothesis best
supports the reasons behind the merger.

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Dissertation Gary J Ford Oct 2005[1]

Dissertation Gary J Ford Oct 2005[1]

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