Stock merger activity and industry performance
DOI
10.1016/j.jbankfin.2021.106160
Abstract
We propose a merger activity variable (MAV) as an alternative to industry merger waves. Unlike discrete merger waves that separate periods of extreme activity from the rest, our continuous MAV utilizes information in the full range of stock merger activity. We rank Fama-French 12 industries by MAV each quarter and arrange them into 12 bucket portfolios. We examine their prior and subsequent three-year excess returns using calendar-time portfolio method. The prior returns are positively related to MAV ranks while the subsequent returns are negatively related to MAV ranks. This evidence suggests a build-up of misvaluation (undervaluation of relatively less stock merger active industries and overvaluation of relatively more active industries) followed by a correction. On average, the most active industry outperforms the least active industry by 13.46% during the prior period, but underperforms by 10.30% during the subsequent period. Industry operating performance results further support the industry misvaluation theory of stock merger activity.
Document Type
Restricted Article: Campus only access
Publication Date
8-2021
Publisher Statement
Copyright © 2021, Elsevier B.V.
DOI: https://doi.org/10.1016/j.jbankfin.2021.106160
The definitive version is available at: https://www.sciencedirect.com/science/article/pii/S0378426621001199
Recommended Citation
Meng, Bo, and Anand M. Vijh. “Stock Merger Activity and Industry Performance.” Journal of Banking & Finance 129 (August 2021): 106160. https://doi.org/10.1016/j.jbankfin.2021.106160.