Impact of merger and acquisition announcements on the acquiring shareholders' wealth : the case of Nokia and Apple

Abstract

Academic research on merger and acquisitions has been driven on studying the short and long term impact that acquisition announcements have on the shareholder wealth for the acquiring and target firms. This study concentrates on describing in the short term the impact that M&A announcements have on the acquiring firm’s stock market returns taking into account acquisitions that have been carried out by two important players within the telecommunication industry Apple and Nokia from 2005 to 2010.

In order to calculate the normal returns for the acquiring firms, the market model based on the capital asset pricing model (CAPM) was used. Also, the NASDAQ 100 market index was used in the market model. The Abnormal returns (AR) will be cumulated to obtain cumulated abnormal returns (CAR) over a window period (-3, 3) after that, statistical test will be done for ARs and CARs to ensure the statistical validity of stock reaction to M&A announcements.

The results showed from the empirical analysis of this research are consistent with the hypothesis that was formulated indicating that the M&A announcements do have an impact on the stock prices and returns in the short term, meaning that they have an influence during the day of the announcement and three days after.