How did Covid-19 pandemic affect the profitability of M&A transactions?

Historically, mergers and acquisitions (M&As) have been pivotal for corporate growth, but with mixed outcomes. Some enhanced company value, but many diminished it. However, a recent study by Alexandridis et al. (2017) shows that the efficiency of M&A transactions has significantly improved during the last decades. The Covid-19 crisis in early 2021 caused global economic turmoil. Yet, M&As reached a record high that year. However, until this research, it was unclear whether Covid-19 had any effect on abnormal returns from the conducted M&As. Prior research, such as a study by Beltratti and Paladino (2013), indicated that the 2008 financial crisis led to negative average abnormal returns, raising questions about Covid-19's impact on M&A efficiency and whether recent efficiency improvements suggested by Alexandridis et al. (2017) persisted. This study examines the impact of Covid-19 on the abnormal returns of acquirers' shareholders in Nordic markets. Firstly, the relationship is analyzed by using cumulative average abnormal returns (CAAR) for data subgroups. Secondly, multivariate regression is used to further assess the relationship between Covid-19 and abnormal M&A returns. Not only does this study focus on the possible changes in the abnormal returns, but also on the timing of these returns. Results show, that accordingly with the findings of Alexandridis et al. (2017), the abnormal returns indeed have become more efficient lately. However, the effects of Covid-19 on the abnormal returns have mainly been negative. Even though Covid-19 affects the abnormal returns mainly negatively, the abnormal returns remain positive during the Covid-19 in all of the models. In other words, the abnormal returns have been positive during Covid-19, but lower than before the crisis. Surprisingly, the timing of the abnormal returns does not differ during Covid-19 from the period before it.