Can Stock Markets Predict M&A Failure? A Study of European Transactions in the Fifth Takeover Wave


  • The authors wish to express their gratitude to the editor John Doukas and an anonymous referee at European Financial Management. They are further grateful for the useful comments from Abe de Jong, Marc Deloof, Nico Dewaelheyns, Tom Franck, Florian Geiger, Jean-Yves Gnabo, Anjo Koëter-Kant, Mathieu Luypaert, Randy Priem, Piet Sercu, Jo Van Biesebroeck, Linda Van de Gucht, Lambert Vanthienen, and Lihong Wang on an earlier draft of this paper. They also highly appreciate the comments received from participants at the Corporate Finance Day in Rotterdam and Antwerpen (September 2008 and September 2009), the UCL/KULeuven workshop in Brussels (January 2009), the research seminar held at the University of Antwerp (May 2009), and the EFMA Annual Meeting in Milan (June 2009). They wish to sincerely thank the National Bank of Belgium (NB/07/04) for the financial support that was received for this research project. Correspondence: Katrien Craninckx.


In this paper we develop various measures of M&A failure for an intra-European sample during the fifth takeover wave: inferior long-term stock performance, inferior operating performance, and target divestment. After documenting the extent of M&A failure, we test the relation between short-term abnormal returns at deal announcement and M&A failure. We examine a sample where listed bidders acquire listed targets (267 deals) as well as privately-held targets (336 deals). Our results indicate M&A failure rates up to 50% in both samples. When acquirers and targets are listed, lower M&A announcement returns are consistently and significantly associated with higher M&A failure probabilities and long-term losses. In contrast, when targets are privately held, we find no evidence of such an association.