MERGERS AND ACQUISITIONS DURING CHANGING BUSINESS CYCLES. Case: Medical industry

Abstract

The purpose of this study is to find out whether the market reaction to a merger and acquisition announcement differs in medical industry transactions in different business cycles. The data is from two different business cycles. The data for the recession period is from March 2001 to November 2001. The data for expansion period is from equally long period before the beginning of the recession in March 2001. The cycles are defined by the National Bureau of Economic Research. The data is from the USA. The mergers and acquisitions are with different stakes in the target company and with different financing methods. Event study is used to investigate the abnormal returns. The investigated period is at the day of the announcement and ten days after and before it. The research results suggest that the markets react in a different manner to a merger and acquisition announcement depending on the business cycle regarding medical industry announcements. More abnormal returns were noticed during the recession period as markets might assume that the potential for value creation of the deals made during a recession is higher because of lower target prices. At the end of the investigated period the cumulative abnormal returns noticed for both of the business cycles were positive.