Eetu Laaksonen The Impact of M&A Announcements on Acquirers’ Short-Term Stock Performance Evidence from Finnish Companies Listed on OMXH Vaasa 2024 School of Accounting and Finance Masters thesi’s M.Sc. Finance 2 VAASAN YLIOPISTO School of Accounting and Finance Tekijä: Eetu Laaksonen Tutkielman nimi: The Impact of M&A Announcements on Acquirers’ Short-Term Stock Performance: Evidence from Finnish Companies Listed on OMXH Tutkinto: Kauppatieteiden maisteri Oppiaine: Rahoitus Työn ohjaaja: Anupam Dutta Valmistumisvuosi: 2024 Sivumäärä: 64 TIIVISTELMÄ: Tässä tutkimuksessa tarkastellaan yritysjärjestelyiden (M&A) vaikutusta ostajayritysten lyhyen aikavälin osakekurssin kehitykseen. Tutkimuksen kohteena ovat suomalaiset, Helsingin Pörssiin (OMXH) listatut yritykset, jotka ovat toteuttaneet yritysjärjestelyjä vuosien 2014-2023 välillä. Tutkielman tavoitteena on selvittää tuottavatko yritysjärjestelyt ostajayrityksille poikkeavia epä- normaaleja tuottoja lyhyellä aikavälillä, sekä miten erilaiset kauppojen ominaispiirteet kuten maksutapa, ostajan koko, maantieteellinen ulottuvuus ja toimialasidonnaisuus vaikuttavat näihin tuottoihin. Tutkimus perustuu tapahtumatutkimuksen metodologiaan, jossa epänormaalit tuotot ja kumu- latiiviset epänormaalit tuotot laskettiin käyttäen OMXH-indeksiä vertailuindeksinä. Aineistona käytettiin 88 toteutunutta yritysjärjestelyä, jotka täyttivät tarkat valintakriteerit. Tutkimuksessa käytettiin kolmea aikaikkunaa markkinareaktioiden tarkastelemiseen ennen ja jälkeen yritysjär- jestelyilmoituksen: [-1, +1], [-5, +5] ja [-10, +10]. Aikaikkuna [-1, +1] keskittyy välittömiin lyhyen aikavälin reaktioihin ilmoituksen ympärillä, [-5, +5] tarkastelee reaktioiden laajempaa kehitystä, ja [-10, +10] tapahtumaikkuna kuvaa pidemmän aikavälin näkymän kestävyyttä. Tutkimuksen tulokset osoittavat, että yritysjärjestelyiden ilmoitukset tuottavat merkittäviä ly- hyen aikavälin epänormaaleja tuottoja ostajayrityksen osakkeenomistajille. Ilmoituspäivän epä- normaali tuotto oli 3,14 % ja kumulatiivinen tuotto tarkasteluvälillä [0,+1] oli 4,19 %. Keskeiset löydöt koskien kauppamenetelmiä toivat ilmi, että maksutavan osalta osakekaupat tuottivat kor- keampia epänormaaleja tuottoja kaikilla tarkasteluväleillä verrattuna käteiskauppoihin ja seka- maksuihin mutta osakekauppojen tulokset eivät olleet merkitseviä johtuen pienestä otanta ka- nasta. Sen sijaan käteiskaupoissa ja sekamaksuissa havaittiin tilastollisesti merkitseviä positiivisia tuottoja, mikä tukee aikaisempaa kirjallisuutta siitä, että käteismaksut ja sekamaksut voivat toi- mia signaaleina yrityksen vakaudesta ja luottamuksesta kaupan onnistumiseen. Pienet ostajayritykset tuottivat johdonmukaisesti korkeampia epänormaaleja tuottoja kuin suu- ret yritykset, mikä myös vahvistaa aikaisemman kirjallisuuden näkemyksiä siitä, että pienempien toimijoiden odotetaan kykenevän tehokkaammin hyödyntämään synergiaetuja ja kasvumahdol- lisuuksia. Lisäksi kotimaiset yritysjärjestelyt tuottivat parempia tuloksia lyhyemmällä tarkastelu- väleillä, kun taas pidemmissä tarkasteluikkunoissa kansainväliset järjestelyt saivat aikaan korke- ampia tuottoja. Vastoin odotuksia toimialasidonnaisten järjestelyt pärjäsivät heikommin kuin konglomeraattijärjestelyt, mikä viittaa mahdollisiin rakenteellisiin erityispiirteisiin suomalaisessa markkinassa. AVAINSANAT: Yritysjärjestelyt, Fuusiot ja Yritysostot, Osakemarkkinat, Osaketuotot, tapah- tumatutkimus, Epänormaalit tuotot, Kumulatiiviset epänormaalit tuotot 3 Table of Contents 1 Introduction 6 1.1 Background and Motivation 6 1.2 Hypotheses 7 2 Mergers and Acquisitions 11 2.1 Categories of M&A Transactions 11 2.2 Asset Transactions and Share Acquisitions 13 2.3 The M&A Process 14 2.4 Trends in M&A Activity and Historical Waves 16 3 Motivations in Mergers and Acquisitions (M&A) 18 3.1 Overview of M&A Motivations 18 3.2 Theories of M&A Motivations 19 3.3 Complexity of M&A Motivations 21 3.4 Drivers of Value Creation in M&A 22 3.5 Value Destructive Motives in M&A 24 4 Review on M&A Performance 26 4.1 Short-term Stock Performance 26 4.2 Factors Influencing Short-term Financial Performance of Acquisitions 30 Payment Method Impact on Acquirers' Stock Returns 30 Acquirer Size: Small vs. Large Firms 32 Cross-Border vs. Domestic Acquisitions in the Nordic Region 33 Sector-Specific Performance: Conglomerates vs. Industry-Related Deals 34 5 Data and Methodology 37 5.1 Data 37 5.2 Event Study Methodology 40 Calculation Model 43 6 Results 47 4 6.1 Event Studies 47 Deal Type Analysis 50 Acquirer Size Analysis 51 Geographical Scope Analysis 53 Industry-Related and Conglomerate M&A Transactions 54 7 Summary and Conclusions 56 References 58 5 List of Figures Figure 1. Different Merger and Acquisition types. 13 Figure 2. Number & Value of M&A Worldwide (IMAA 2024). 17 Figure 3. Classification of motives behind M&As (Trautwein, 1993) 21 Figure 4. Description of Estimation Window and Event Windows 43 Figure 5. Market Reactions – Average Abnormal Returns (AAR) and Cumulative Average Abnormal Return (CAAR) 49 List of Tables Table 1. Characteristics of M&A Transactions in the Dataset 39 Table 2. Descriptive Statistics of Average Abnormal Returns (AAR) 48 Table 3. Cumulative Abnormal Returns (CAAR) and Statistical Significance – Full Sample 49 Table 4. CAAR and Statistical Significance by Deal Type 51 Table 5. CAAR and Statistical Significance – Small-Cap Companies 52 Table 6. CAAR and Statistical Significance – Large-Cap Companies 52 Table 7 CAAR and Statistical Significance – Domestic M&As 53 Table 8. CAAR and Statistical Significance – Cross-Border M&As 54 Table 9 CAAR and Statistical Significance – Industry-Related M&As 55 Table 10. CAAR and Statistical Significance – Conglomerate M&As 55 List of Abbreviations AAR Average Abnormal Return AR Abnormal Return CAAR Cumulative Average Abnormal Return CAR Cumulative Abnormal Return M&A Mergers and Acquisitions OLS Ordinary Least Squares OMXH OMX Helsinki (Helsinki Stock Exchange) R&D Research and Development 6 1 Introduction In today’s highly competitive and globalized markets, mergers and acquisitions (M&A) have become as an important strategic tools for companies seeking growth and en- hanced shareholder value. However, the impact of M&A transactions on short-term stock performance of acquiring companies remains a contentious subject. While M&A announcements often benefit shareholders of the target company, acquiring companies frequently see mixed or even negative short-term returns. This thesis investigates short- term stock performance of companies listed on the Helsinki Stock Exchange (OMXH) fol- lowing M&A announcements. The primary objective is to assess whether these transac- tions yield abnormal returns for acquirers' shareholders and to identify the factors influ- encing these outcomes. By focusing on the Finnish market, this study aims to contribute to the ongoing discussion on the actual value-creation impact of M&A activity for acquir- ing firms. 1.1 Background and Motivation To understand the broader motivations and challenges associated with M&A strategies, it is essential to consider their role as tools for growth, market expansion, and risk diver- sification. M&As are particularly important for small and geographically challenging mar- kets like Finland, where opportunities for organic growth are limited. In Finland, as in many other countries, M&A activities play a key role in corporate strategy, especially for companies pursuing grow both domestically and internationally. Despite the strategic rationale, research often suggests that acquirers struggle to achieve positive short-term returns after M&A announcements, with many studies indicating that such transactions may destroy, rather than create value (Aktas et al., 2011; DePamphilis, 2016, p. 35-40; Renneboog & Vansteenkiste, 2019; Chen et al., 2022). The motivation for this study arises from the ongoing debate about the shareholder value generated by M&A announcements. While M&A deals are generally pursued to 7 achieve synergies, strengthen market position, and enhance competitiveness, the real- ized financial outcomes, particularly in the short term, often fall short of expectations. Although this topic has been widely researched, the Finnish market has received limited attention, especially regarding the short-term stock performance of acquirers. This gap in empirical research presents an opportunity to investigate the Finnish context more closely. Cross-border acquisitions have become increasingly common in Finland, but they pre- sent distinct challenges, including cultural and regulatory complexities, that can nega- tively influence market reactions. Furthermore, the rapid development of technology, particularly in artificial intelligence and machine learning, has forced companies to re- consider their growth strategies. Many companies now turn to mergers and acquisitions to adapt to keep up with these technological developments. (Liimatainen & Lähteenmaa, 2020) While many acquirers pursue M&A to increase shareholder value, an extensive amount of research shows that these transactions often fail to meet projected financial returns. The initial performance improvements tend to diminish over time, and numerous studies report minimal or negative abnormal returns for acquirers in the short term (Moeller et al., 2004; Anderson et al., 2017; DePamphilis, 2016, p. 35-40). Given the limited litera- ture on this topic in Finland, this study aims to investigate whether Finnish acquirers experience similar patterns and to identify factors that affect their short-term stock per- formance after M&A announcements. 1.2 Hypotheses The objective of this study is to analyze whether M&A announcements create value for the acquirer’s shareholders, specifically by examining the short-term performance of companies listed on the OMX Helsinki (OMXH). Drawing on existing literature and adapt- ing it to the Finnish market context this thesis explores factors that may influence acquir- ers’ short-term stock performance, including payment method, acquirer size, and the 8 geographic scope of the acquisition. To test these hypotheses, this study will employ an event study methodology analyzing stock price reactions to M&A announcements within a defined event window. The first hypothesis examines whether M&A announcements produce abnormal returns for acquirers’ shareholders. While these returns can vary by region and industry, re- search by Betton, Eckbo, and Thorburn (2008) suggests that mergers and acquisitions often result in abnormal returns. Based on these findings, the first hypothesis is as fol- lows: H1: Announcements of M&A transactions lead to positive abnormal returns for acquirers’ shareholders. 𝐻!: M&A announcements do not lead to positive abnormal returns for the acquirer’s shareholders. Research by Martynova & Renneboog (2009) and Travols (1987), indicates that cash-fi- nanced transactions generally yield higher abnormal returns than stock-financed acqui- sitions. Cash payments are often seen as a signal of financial robustness and lower risk, while stock-based payments can indicate overvaluation. Therefore, the second hypoth- esis is: H2a: Cash-financed acquisitions generate higher short-term abnormal returns for acquir- ers than stock-financed acquisitions. 𝐻!: Cash-financed acquisitions do not generate higher short-term abnormal returns than stock-financed acquisitions. Additionally, mixed payment methods, combining cash and stocks, offer flexibility by balancing equity dilution and liquidity retention. According to Alexandridis et al. (2013) 9 and Faccio & Masulis (2005), mixed-payment approaches can create more value than stock-financed deals but often underperform compared to cash-financed transactions. Thus, the alternative hypothesis is: H2b: Mixed-payment acquisitions generate higher short-term abnormal returns than stock-financed acquisitions but lower returns than cash-financed acquisitions. 𝐻!: Mixed-payment acquisitions do not generate higher short-term abnormal returns than stock-financed acquisitions, nor lower returns than cash-financed acquisitions. The third hypothesis focuses on the influence of acquirer size on the short-term re- turns. Smaller companies are expected to achieve higher returns due to their greater growth potential and synergies. Studies such as Harford (2005) and Alexandridis et al. (2010) support this view. Therefore, it is hypothesized that: H3: Smaller acquiring firms generate higher abnormal returns compared to larger firms following M&A announcements. 𝐻!: Smaller acquiring firms do not generate higher abnormal returns compared to larger firms following M&A announcements. The fourth hypothesis examines whether domestic acquisitions outperform cross-bor- der acquisitions in terms of stock performance. Due to cultural and regulatory differ- ences, cross-border deals are more complex and yield lower returns. Research by Eun et al. (1996) and Moeller & Schlingemann (2005), suggest that domestic acquirers are more likely to achieve abnormal returns. Accordingly, the hypothesis is: H4: Domestic M&A transactions generate higher abnormal returns for acquirers com- pared to cross-border transactions. 10 𝐻!: Domestic M&A transactions do not generate higher abnormal returns for acquirers compared to cross-border transactions. The final hypothesis explores whether the nature of the acquisitions, specifically indus- try-related or conglomerate transactions affect the market reactions. Industry-related acquisitions are often expected to generate positive abnormal returns due to synergies, operational efficiencies and competitive advantages by merging companies from the same sector, as highlighted by Martynova and Renneboog (2011). In contrast, conglom- erate acquisitions can be viewed with skepticism due to potential challenges concerning strategic fit, operational complexity and managerial efficiency, as discussed by Morck, Shleifer and Vishny (1990). Existing research largely suggests that industry-related acqui- sitions are more likely to generate abnormal returns compared to conglomerate ones. Based on this, the final hypothesis is: H5: Industry-related acquisitions generate higher abnormal returns than conglomerate acquisitions. 𝐻!: Industry-related acquisitions do not generate higher abnormal returns than con- glomerate acquisitions. 11 2 Mergers and Acquisitions Mergers and acquisitions (M&A) offer a dynamic avenue for businesses aiming to expand beyond the limitations of organic growth. These strategic transactions enable companies to diversify their operations, penetrate new markets, and strengthen their competitive position. Through M&A, companies can acquire complementary businesses, broaden their customer base, and secure valuable assets such as research and development (R&D), intellectual property, and advanced technologies (DePamphilis, 2016, pp. 561– 565). In addition, these transactions provide an opportunity to reduce tax burdens by establishing subsidiaries in favorable jurisdictions, enhance operational efficiency through synergies, mitigate competition, and improve access to financial resources (Renneboog & Vansteenkiste, 2019). Despite known risks, such as integration challenges or failure to achieve anticipated syn- ergies, M&A remains an indispensable tool for companies with ambitious growth objec- tives. For some firms, acquisitions are a necessary strategy to achieve long-term goals that cannot be achieved through internal operations alone (Liimatainen & Lähteenmaa, 2020, pp. 187–189). Synergy benefits are often considered as a primary driver for M&As, where the combined value of the merged entities exceeds the sum of their individual contributions. Such synergies can arise from operational improvements, cost reductions, economies of scale, or enhanced market influence. M&A also enables companies to cap- italize on emerging market opportunities, improve managerial capabilities, and adapt rapidly to changing market environments (DePamphilis, 2018, pp. 561–565). 2.1 Categories of M&A Transactions M&A transactions can be classified into different categories based on their strategic pur- pose and the level of integration required. Although "merger" and "acquisition" are of- ten used interchangeably, they refer to different processes. In acquisitions, one firm gains control over another by purchasing a majority stake (over 50%) or specific assets. In contrast, mergers involve a more balanced integration of two companies into a new 12 entity, where ownership and control are shared (Gaughan, 2015, p. 11; Junni & Teerikan- gas, 2019). Figure 1 outlines the primary types of M&A transactions and their classifica- tions. Mergers can be categorized into two broad types: consolidation and absorption. A con- solidation merger combines the resources, assets, and liabilities of two companies to form an entirely new organization, often leading to a greater operational and market strength. Conversely, in an absorption merger, one company integrates another's assets and liabilities, effectively dissolving the acquired entity. A variation of this is the subsidi- ary merger, where the acquired company continues to operate as a subsidiary under the parent firm (Gaughan, 2015, pp. 11–13). Acquisitions, on the other hand, are generally divided into expansion-focused and diver- sification-focused types. Expansionary-focused acquisitions aim to increase market share within the same industry and are further categorized into horizontal and vertical acquisitions. Horizontal acquisitions involve firms operating at the same stage of the sup- ply chain, aiming to reduce competition and improve market dominance. Vertical acqui- sitions take place between companies at different stages of the supply chain, such as suppliers or distributors, and aim to secure resources, optimize operations, and enhance efficiency (DePamphilis, 2016, pp. 20–25). Diversification-focused acquisitions, which include concentric and conglomerate acqui- sitions, involve firms that seek for growth outside their core industry. Concentric acqui- sitions target businesses from related industries with overlapping markets or distribution networks, enabling the acquirer to achieve operational synergies and expand its reach. In contrast, conglomerate acquisitions involve acquiring firms from entirely unrelated industries, aiming to reduce risks associated with dependency on a single market or sec- tor (Liimatainen & Lähteenmaa, 2020, pp. 70–71). 13 Each type of M&A is designed to meet specific strategic objectives. Horizontal acquisi- tions focus on market control by eliminating competition, while vertical acquisitions em- phasize operational integration to secure supply chains. Concentric acquisitions aim to utilize synergies and expand market reach, while conglomerate acquisitions prioritize risk reduction through diversification (Chen et al., 2022). Figure 1. Different Types of Merger and Acquisitions. (Adapted from: Liimatainen & Lähteenmaa, 2020) 2.2 Asset Transactions and Share Acquisitions Mergers and acquisitions (M&A) can be structured in different ways, but the two most common frameworks are asset deals and share deals. Each approach carries unique im- plications for both the buyer and the seller, as well as their shareholders. In asset deals, the acquiring company purchases specific assets from the target company, such as equip- ment, inventory, or intellectual property. This approach enables acquirers to tailor the acquisition by selecting only those assets that are essential for their strategic objectives. Furthermore, any payment exceeding the book value of the acquired assets is recorded as goodwill on the acquirer’s balance sheet, representing the intangible benefits gained Mergers and Acquisitions Mergers Consolidation Mergers Absorption Mergers Acquisitions Diversifying Concentric Conglomerative Expansive Vertical Horizontal 14 through the deal, such as brand reputation, established customer relationships, or pro- prietary technologies. Asset deals are often preferred when the buyer wants to limit lia- bilities or focus on acquiring operationally critical resources (Betton et al., 2008). On the other hand, share deals involve the buyer acquiring a stake in the target com- pany’s equity, either as a controlling majority or a minority interest. A controlling stake gives a significant influence over the target’s strategic direction, while full takeovers of- ten lead to complete integration. In some cases, particularly hostile takeovers, the trans- action is completed without the consent of the target company’s management, which can lead to operational and cultural challenges during integration. Although share deals offer the advantage of acquiring an established entity, they come with potential risks, such as liabilities of the target company and governance challenges (Betton et al., 2008). Although both approaches have clear advantages, their appropriateness often depends on the acquirer’s strategic goals, the target company’s financial health, and the desired level of operational integration. Asset deals are generally considered less risky due to their selectivity, while share deals provide broader control and access to existing opera- tions (Chen et al., 2022). 2.3 The M&A Process The merger and acquisition (M&A) process is a structured series of phases that guides organizations from the initial planning stage to the successful integration of two entities. Every step of this journey plays an important role in ensuring that the transaction deliv- ers the expected value and aligns with the company's strategic goals. The process starts with strategic planning, where the acquiring company identifies its motivations for pursuing an M&A deal. These motivations often arise from shifts in mar- ket conditions, competitive pressures, or regulatory changes. At this stage, the company defines clear objectives and aligns the acquisition strategy with its long-term vision to ensure that the deal supports its overall business goals (Gaughan, 2015, pp. 105-106). 15 Next comes the identification and evaluation of potential targets, where the acquiring company narrows down the search for potential candidates. This phase often involves external advisors who assist with market research and financial assessments to evaluate the suitability of potential targets. Factors such as the target’s financial stability, strategic fit, and market position are scrutinized. Once a suitable target is selected, a preliminary analysis is conducted to determine the potential synergies and risks associated with the transaction (Liimatainen & Lähteenmaa, 2020, pp. 83-85). After selecting a target, the process moves into the due diligence phase, which is critical for revealing risks and validating the financial and strategic assumptions made in the previous stages. This step includes a detailed examination of the target company’s finan- cial records, legal agreements, operational efficiency, and potential liabilities. Due dili- gence is typically conducted by a team of experts in finance, law, and strategy to ensure a comprehensive risk assessment. The findings from this phase inform the negotiation process and give the acquiring company opportunity to adjust its offer accordingly (Liimatainen & Lähteenmaa, 2020, pp. 83-85; Duan & Jin, 2018). Following due diligence, the negotiation and agreement phase takes place. During this stage, the acquirer and target finalize the terms of the deal, including the purchase price, payment structure, and governance plans for the post-acquisition period. Regulatory ap- provals, such as antitrust agreements, are often required at this stage to ensure the deal complies with legal requirements. Once an agreement is reached, the transaction is pub- licly announced, which can cause a significant stock price movements for both the ac- quiring and target companies (Gaughan, 2015; Liimatainen & Lähteenmaa, 2020, pp. 83- 85). The final step, post-merger integration, is where the success of the M&A deal is ulti- mately determined. During this phase, the merging entities align their operations, or- ganizational cultures, and systems to achieve the expected synergies. This phase requires 16 clear communication, effective change management, and strategic alignment to over- come integration challenges. Companies that succeed in post-merger integration can achieve significant cost savings, operational efficiencies, and long-term value creation, while poorly managed integrations often lead to missed opportunities and value erosion (Zollo & Singh, 2004). 2.4 Trends in M&A Activity and Historical Waves Mergers and acquisitions (M&A) activity is highly cyclical, often reflecting broader eco- nomic conditions. During periods of economic growth, businesses are more likely to en- gage in M&A transactions, leveraging favorable market valuations and improved access to financing. Conversely, economic downturns usually decrease M&A activity due to in- creased uncertainty and reduced financial resources (Junni & Teerikangas, 2019). M&A activity has developed in waves over the past century, with notable peaks in trans- action volumes punctuated with falls. These waves are closely tied to economic cycles and are typically influenced by factors such as interest rates, stock market performance, and technological developments. Since the late 19th century, seven distinct M&A waves have been identified, each driven by unique macroeconomic and industry-specific fac- tors (IMAA, 2024). There is evidence that periods of low interest rates and strong stock market performance tend to increase the availability of financing, making M&A transactions more attractive and affordable. For example, research by Andrade et al. (2001) found that favorable fi- nancing conditions, combined with robust economic growth, have historically acceler- ated M&A waves. Additionally, industry-specific disruptions, such as technological inno- vations or regulatory reforms, can create opportunities for strategic consolidation, fur- ther reinforcing M&A activity (Harford, 2005; Di Giuli, 2013). Figure 2 illustrates the fluctuations of global M&A activity over recent decades and high- lights how external shocks impact transaction volumes and values. For instance, the 17 global financial crisis of 2008 and the COVID-19 pandemic in 2020 led to sharp declines in M&A activity as companies focused on preserving liquidity and navigating economic uncertainty. Despite these challenges, M&A activity rebounded strongly in 2021, reach- ing an all-time high of more than $5 trillion in deal value. The number of deals fell from over 65,000 in 2021 to approximately 39,500 in 2023, and deal values fell below $2.5 trillion, indicating a sharp reduction in worldwide M&A activity by that year (IMAA, 2024). Figure 2. Number and Value of Global M&A Transactions (IMAA 2024). 18 3 Motivations in Mergers and Acquisitions (M&A) Understanding the motivations behind mergers and acquisitions (M&A) is essential, as they directly affect the strategic goals and outcomes of these transactions. While M&A outcomes have received significant attention in research, the factors driving these deci- sions remain less explored. This chapter categorizes and analyzes the various motives behind M&A transactions to provide a deeper understanding of why companies engage in these often very expensive and complex deals. 3.1 Overview of M&A Motivations Motivations for M&A are commonly classified into three broad categories: economic, strategic, and managerial. Each category reflects different factors that shape acquisition decisions and their potential impact on shareholder value (Angwin, 2007; Rabier, 2017). Economic motives focus on creating financial efficiencies. These are primarily driven by the potential for synergies, which aim to maximize shareholder value by reducing oper- ational costs, achieving economies of scale, and enhancing market power (Katramo et al., 2013, p. 33). Strategic motives emphasize the expansion of competitive advantages. Companies often pursue acquisitions to secure valuable assets such as intellectual property, enter new markets, or diversify their offerings, all of which contribute to long-term growth and sus- tainability (Junni & Teerikangas, 2019). Managerial motives, however, can sometimes differ from shareholder interests. These motivations may stem from executives’ personal goals, such as increasing company size or meeting short-term performance metrics, which could enhance their compensation packages or professional prestige. Such actions may not always align with maximizing long-term shareholder value (Harford et al., 2012; Renneboog & Vansteenkiste, 2019). 19 3.2 Theories of M&A Motivations The motivations for mergers and acquisitions (M&A) are diverse and based on both shareholder-focused goals and broader organizational dynamics. Trautwein (1990) pro- vides a widely recognized framework that categorizes these motivations into two main groups: rational motives aligned with shareholder interests and broader influences shaped by organizational or managerial factors. This categorization is visualized in Figure 3, which outlines the key theories explaining M&A drivers and their implications. Rational motivations primarily focus on maximizing shareholder value by creating syner- gies, transferring wealth, or utilizing private information. Efficiency theory posits that mergers generate synergies, which can be operational, financial, or managerial. Financial synergies arise from reduced capital costs through diversification or the creation of in- ternal capital markets. Operational synergies include cost savings, shared resources, and improved product offerings, while managerial synergies arise from improved governance and strategic control of the acquired firm (Trautwein, 1990). Despite the potential ben- efits, empirical evidence on synergies provides mixed results. Haleblian et al. (2009) highlight that while target firms often gain positive returns from M&A announcements, acquiring firms experience more modest results. Similarly, King et al. (2004) note that many mergers fail to achieve their anticipated long-term financial benefits. Monopoly theory suggests that firms pursue M&A to increase their dominant market position, allowing them to control prices, reduce competition, and strengthen their bar- gaining power. Companies can achieve this by cross-subsidizing profits, eliminating com- petitors, or prevent new entrants. While research supports the potential for increased market power, efficiency-related synergies are typically more common (Trautwein, 1990). Valuation theory emphasizes the role of private information in driving acquisi- tions. Firms with superior insights of the target's true value can identify opportunities for undervaluation or hidden synergies. However, the uncertainty related to private in- formation often makes it difficult to realize these benefits (Aktas et al., 2011). This theory 20 highlights the competitive advantage of acquirers with industry-specific expertise in in- tegrating operations or identifying unrecognized potential (Moeller et al., 2004). The second group of motivations is driven by goals that do not align with shareholder interests and by external factors. Empire-building theory argues that managers may pri- oritize personal objectives over shareholder interests, pursuing acquisitions that in- crease their influence and control. Such motivations often lead to overpayment for tar- gets, resulting in poor long-term performance and reduced shareholder value (Harford et al., 2012). Process theory examines the role of internal organizational dynamics, such as bounded rationality, organizational routines, and internal politics, in shaping M&A de- cisions. Stakeholders may support or oppose acquisitions based on personal interests rather than strategic considerations (Anderson et al., 2017; Renneboog & Vansteenkiste, 2019). Raider theory describes aggressive acquisition tactics aimed at extracting value from the target firm, such as greenmail or excessive compensation demands. However, empirical support for this theory is limited, as target shareholders often benefit from such transactions (Betton et al., 2008). Disturbance theory, developed by Gort (1969), attributes M&A waves to economic shocks that alter expectations and asset valuations. Regulatory changes, financial crises, and technological advancements can trigger an increase in M&A activity as firms adapt to shifting conditions. Harford (2005) and Di Giuli (2013) extend this theory by linking merger waves to macroeconomic factors such as interest rates and stock market perfor- mance. While disturbance theory explains the timing of M&A waves, it does not account for industry-specific variations. 21 Figure 3. Classification of motives behind M&As (Trautwein, 1993) 3.3 Complexity of M&A Motivations Understanding the complexity of motivations behind mergers and acquisitions (M&A) is essential, as these factors are often intertwined and affect both the decision-making process and the outcomes. Despite extensive research, it remains challenging to isolate the dominant forces driving M&A transactions. Haleblian et al. (2009) emphasize that the interplay between financial and managerial motives complicates efforts to identify whether one category consistently outweighs the other. Empirical studies often focus on individual motivations, leaving a broader understanding of their interaction relatively understudied (Katramo et al., 2013). In most cases, M&A decisions are not driven by a single motivation but rather by a com- bination of factors. Research by Nguyen et al. (2012), analyzed 3,520 mergers and found that most were influenced by multiple factors, with 78% related to more than one moti- vation. Their findings revealed that market timing affected 75% of transactions, agency- related issues or executive overconfidence affected 59%, while only 3% were primarily driven by economic or industry-specific shocks. These results highlight the nuances and 22 multifaceted nature of M&A, where value-enhancing and value-destroying motives of- ten coexist, making it difficult to identify a single driving factor. Katramo et al. (2013) further suggest that some M&A motives remain underexamined, leading to an incomplete understanding of their significance. This complexity under- scores the need for a more comprehensive approach when studying M&A motivations, particularly in contexts where multiple factors preceding at the same time. 3.4 Drivers of Value Creation in M&A Value-increasing motives in mergers and acquisitions (M&A) represent factors that en- hance shareholder value through improved efficiency, financial benefits, or strategic ad- vantages. These drivers include operational, financial, and managerial synergies, as well as the strategic use of private information to generate superior returns (DePamphilis, 2016). Operational synergies arise when merged companies optimize their operations, resulting in cost savings or productivity improvements. Horizontal mergers, where firms within the same industry consolidate, often aim to achieve economies of scale by lowering the cost per unit of production. This is particularly advantageous in industries with high fixed costs, such as manufacturing or technology (Rabier, 2017). Economies of scope, on the other hand, are achieved when companies utilize shared resources to expand their prod- uct or service offerings, boosting profitability (Singh & Montgomery, 1987). Operational synergies also improve efficiency in areas like research and development (R&D), procure- ment, and distribution. For instance, combining R&D activities accelerates innovation and eliminates redundancies, while streamlined procurement and logistics reduce input and delivery costs (Trautwein, 1993; Seth, 1990). Financial synergies focus on improving the financial efficiency of the merged companies. These benefits include reduced capital costs, optimized internal resource allocation, and 23 tax advantages. Diversification achieved through mergers often reduces overall risk, al- lowing firms to secure financing at more favorable rates (Duan & Jin, 2018; Damodaran, 2005). Larger firms also benefit from better access to capital markets due to their im- proved credit profiles (Trautwein, 1993). Tax-related benefits, such as the utilization of tax shields or the redistribution of losses across business units, further strengthen the financial position (Katramo et al., 2013). However, while financial synergies are impactful, critics argue that their effects are often short-term and less sustainable compared to operational synergies (DePamphilis, 2016). Managerial synergies are realized when the acquiring firm’s executives enhances the performance of the target company. Replacing inefficient management often leads to better governance and strategic alignment, improving shareholder value (Jensen, 1986). These synergies are particularly significant in cases where the target firm is underper- forming, as new management can introduce effective oversight and decision-making processes (Haleblian et al., 2009). Valuation theory highlights the use of private information as a key value-creating motive in M&A. Acquirers with superior knowledge of the target’s potential value can identify opportunities for synergies or undervaluation that are not visible to other market partic- ipants (Masulis et al., 2023). While critics argue that efficient markets should price in all available information, empirical evidence suggests that strategic acquisitions can gener- ate abnormal returns when based on proprietary insights (Black, 1989; Trautwein, 1993). These value-increasing motives highlight the potential of M&A to create significant ben- efits when transactions are carefully planned and executed. However, achieving these benefits often depends on the effective integration of operations, sound financial man- agement, and the strategic alignment of objectives between merging entities (Zollo & Singh, 2004). 24 3.5 Value Destructive Motives in M&A While mergers and acquisitions (M&A) can create value, they are also associated with significant risks that can dilute shareholder value. This section examines three key factors: agency conflicts, managerial overconfidence, and market timing errors, that often con- tribute to value destruction in M&A. These elements highlight the complexities and po- tential pitfalls that acquiring firms must face to achieve successful outcomes. Agency conflicts arise when managers prioritize their personal interests over those of shareholders, often leading to decisions that do not maximize value for investors (Jensen, 1986; Shleifer & Vishny, 1990). For example, executives may pursue acquisitions to im- prove their personal compensation, job security, or prestige, rather than focusing on the long-term profitability of the firm (Morck et al., 1990). This misalignment often results in overexpansion or overpayment in acquisitions, driven by motivations such as increas- ing the firm’s size to justify higher executive bonuses or stock options (Wright et al., 2002; Renneboog & Vansteenkiste, 2019). Empirical evidence underscores the destructive impact of agency conflicts on acquisition outcomes. Studies by Nguyen et al. (2012) and Renneboog and Vansteenkiste (2019) found that transactions influenced by agency problems often fail to generate expected synergies, resulting in reduced shareholder value. Additionally, Chen et al. (2022) ob- served that agency-driven acquisitions often involve excessive premiums, further dimin- ishing the acquiring firm’s financial performance. Managerial overconfidence is another critical factor contributing to poor M&A outcomes. Overconfident executives often overestimate their ability to create synergies and under- estimate the risks involved, leading to suboptimal decisions during acquisition processes (Roll, 1986; DePamphilis, 2016). This overconfidence, often reinforced by previous suc- cesses or positive media coverage, can lead to inflated transaction prices and unrealistic expectations for post-acquisition integration (Hayward & Hambrick, 1997; Dhir & Mital, 2012). 25 Research consistently links overconfidence to underperformance in M&A. For instance, Moeller et al. (2004) found that serial acquirers led by overconfident CEOs often destroy value for their firms, both in the short and long term. Renneboog and Vansteenkiste (2019) also found that acquisitions driven by overconfidence often fail to achieve antici- pated synergies due to resource mismanagement and poor integration strategies. Hay- ward and Hambrick (1997) further noted that overconfident managers may become emotionally attached to their targets, ignoring unfavorable information and rational re- sponses during negotiations. The market timing hypothesis suggests that companies may time acquisitions based on favorable market conditions, such as using overvalued stock as currency to acquire un- dervalued targets (Shleifer & Vishny, 2003). While this strategy can yield short-term gains, it often fails to produce sustainable long-term benefits. Empirical studies, including those by Anderson et al. (2017) and Chuang (2018), highlight that acquisitions timed during periods of overvaluation often result in poor post-acquisition performance as market corrections reduce the perceived value of the acquiring firm. Dong et al. (2006) and Rhodes-Kropf et al. (2005) provided further evidence that com- panies frequently issue shares or make share-based acquisitions when their stock prices are relatively high. However, this approach is fraught with risks, as Ben-David et al. (2015) and Chuang (2018) found that acquisitions during inflated market conditions often lead to value erosion over time, particularly when integration challenges amplify financial pressures. 26 4 Review on M&A Performance According to earlier literature, mergers and acquisitions (M&A) have long played a cen- tral role in corporate strategy, primarily as a means for companies to drive growth, gain competitive advantage, and increase the shareholder value. The performance of acquir- ing companies, especially their stock returns after M&A announcements, has been widely studied. However, findings differ considerably across different markets, industries, and deal types. Alexandridis et al. (2017) highlight the importance of understanding the link between M&A announcements and acquirer performance within corporate finance Studies such as King et al. (2004) focus on the immediate effects of M&A announcements, especially regarding on wealth effects and market reactions. As a result, the event study methodology, which examines abnormal returns around the announcement period, has become a widely used method for assessing the impact of M&A on shareholder value (Brown & Warner, 1985). The financial impact of M&A transactions on the stock prices of acquiring companies has been extensively studied, particularly regarding short-term market reactions following deal announcements. However, findings often differ considerably across various studies and markets, reflecting the complexity and multifaceted nature of these transactions . One consistent finding in M&A literature is that shareholders of target companies gen- erally experience substantial gains after an acquisition announcement, while acquirers frequently gain mixed or even negative abnormal returns (Martynova & Renneboog, 2008). This part of the study reviews the literature on short-term stock performance and then examines the key factors affecting these financial outcomes, as highlighted by mul- tiple studies. 4.1 Short-term Stock Performance Research on the short-term stock performance of acquirer’s post M&A announcements typically focus on stock price movements around the announcement date to assess the impact on acquirers’ shareholder value. Although target shareholders might experience 27 gains, acquirers’ outcomes tend to vary significantly (Campa & Hernando, 2006; Martynova & Renneboog, 2008). For instance, Martynova and Renneboog (2008) ana- lyzed a sample of 1,850 European takeovers from 1993 to 2001, finding that target share- holders gained around 15% in abnormal returns, whereas acquirers recorded a minimal 1% return durng the same period. Similarly, King et al. (2004) conducted a multi-decade meta-analysis that provides a broader perspective on post-acquisition performance. Their analysis consisted of 93 em- pirical studies covering data from more than 25,000 events, primarily from North Amer- ica and Europe. They found that, on average, acquirers failed to deliver positive post- acquisitions abnormal returns, with most experiencing zero to slightly negative abnor- mal returns in the short run. This highlights the complexity of such transactions and the potential risks with overpayments and integration challenges. King et al. (2004) suggests that many of these outcomes are influenced by contextual factors such as the degree of integration required, the industry, and the relative size of the firms involved. These find- ings underscore the importance of examining deeper structural factors rather than fo- cusing solely on short-term performance. A consistently recurring theme in the literature is the difference in short-term stock re- turns between target and acquiring companies. Moeller et al. (2005) study covered more than 12,000 acquisitions in the U.S. between 1980 and 2001, discovering that while tar- get shareholders received significant value, with a cumulative average abnormal return (CAAR) exceeding 20%, acquirers typically earned minimal or negative returns, with CAARs below 1%. The study also found that returns varied significantly by acquirer size, as large acquirers showed significantly weaker results, with CAARs ranging from -0.5% to -1.1%. This underperformance was due to high acquisition fees and difficulties in inte- grating large acquisitions, which were also highlighted in King et al.'s (2004) meta-anal- ysis. 28 Alexandridis et al. (2017) conducted further research on 3,634 US mergers and acquisi- tions between 1990 and 2007, focusing on short-term market reactions in a three-day event window (-1, 0, +1). The study revealed that acquirers earned a moderately positive abnormal return of about 1.05%, particularly in deals where the premium was kept be- low 30%. However, when premiums exceeded 30%, acquirers' abnormal returns fell sig- nificantly, reflecting concerns about excessive premiums and integration challenges. Díaz, Azofra, and Gutiérrez (2009) examined 500 acquisitions in different industries be- tween 1997 and 2004 in a European context. Their findings highlighted the critical role of high premiums in reducing acquirers’ returns. Specifically, they found that for every 10% increase in the premium paid above 30%, acquirers’ abnormal return fell by another 0.2%. This evidence supports previous studies showing that investors react negatively to transactions perceived as overpriced, with premiums above 35% strongly correlated with negative acquirer performance. In the European market, Martynova and Renneboog (2011) extended on their previous work by exploring the merger waves. Their study of 3,200 acquisitions during the fifth wave of European mergers (1993–2001) revealed that acquirers consistently underper- formed during these periods, with a negative abnormal return of approximately -1.0%. The researchers attributed this poor performance to increased competition, often re- sulting in high premiums, and the complexities of integration during merger waves. Bhagat et al. (2011) analyzed M&As in emerging markets, with a particular focus on India. Their study of 1,200 mergers and acquisitions between 2000 and 2010 found that ac- quirers in emerging markets experienced approximately 1.5% CAAR over a three-day pe- riod. While these returns were lower than those for target shareholders, who gained more than 10%. The results contrast with those from developed markets and highlight the greater growth potential and market inefficiencies of emerging economies, which can offer opportunities for acquirers to create value. 29 Conn et al. (2005) studied the UK market between 1984 and 1988 and found the signifi- cant differences between domestic and cross-border acquisitions. Their study reported that domestic acquirers achieved positive abnormal returns of around 1.2%, whereas cross-border deals, particularly those involving emerging markets, yielded negative re- turns, with CAARs ranging between -0.8% and 1.2%. This highlights the challenges and risks associated with operating within an unfamiliar regulatory framework and integrat- ing culturally different organizations. Eun et al. (2014) also explored cross-border challenges in M&As, by investigating M&A activity in politically volatile emerging markets. Their study of 900 deals between 2000 and 2012 showed that acquirers often expeerienced negative abnormal returns due to increased integration risks and regulatory uncertainties. The average CAARs for acquirers in these markets ranged from -1% to -1.5%, highlighting the complexities of cross-border transactions in less stable environments. In the Nordic region, particularly Finland, cross-border M&As have become more com- mon due to the relatively small local market opportunities. Between 2017 and 2024, cross-border transactions accounted for 34% of all deals in Finland (PwC, 2024). However, Finnish acquirers face challenges in generating immediate value for shareholders, with the cumulative abnormal return (CAAR) usually close to zero or negative (EY, 2024). This is in line with global observations but highlights the unique challenges of the Finnish market, especially the high premiums paid for cross-border acquisitions, which often rise over 30% in public takeovers (PwC, 2024). Such premiums often increase negative ab- normal returns as markets perceive them indicators of overpayment, consistent with global studies (Faccio, McConnell, & Stolin, 2006). Overall, these studies consistently show that while target shareholders typically benefit from M&A announcements, acquirers face significant challenges in delivering short-term value. King et al. (2004) argue that this trend may be due to several unidentified factors, such as strategic misalignment and integration risks, which are often overlooked in M&A 30 research. The inclusion of results all around the world reinforces the argument that short-term acquirer performance is impacted by multiple factors. 4.2 Factors Influencing Short-term Financial Performance of Acquisitions As observed in M&A literature, several key factors impact the short-term financial per- formance of acquirers in acquisitions. These include the method of payment used, the size of the acquirer, and whether the transaction is domestic or cross-border. Research on each of these factors provides varying perspectives, often resulting in conflicting find- ings across different contexts and markets. Payment Method Impact on Acquirers' Stock Returns The payment method in M&A transactions significantly affects the short-term stock per- formance of the acquiring company. Cash-financed acquisitions are typically seen as a sign of confidence and financial strength (Travlos, 1987; Alexandridis et al., 2010). By using cash, the acquirer avoids diluting its own equity, which investors often perceive as a positive signal (Faccio & Masulis, 2005). Cash-financed deals indicate that the acquirer has substantial liquidity and expects significant synergies from the acquisition. As a result, cash-financed deals are generally associated with higher short-term abnormal returns (Alexandridis et al., 2013). According to Martynova and Renneboog (2009), cash-fi- nanced acquisitions generate higher short-term returns in Europe than stock-financed acquisitions, especially in cross-border deals where CAARs ranged from 1% to 2.2%. Travlos (1987) was among the first to study cash-financed deals, finding that such acqui- sitions typically yield positive short-term returns for acquirers, with positive cumulative abnormal returns (CAR) of 1% to 2% over a three-day event window (-1, 0, +1). This study was later supported by Alexandridis et al. (2010), who found similar positive CAR values for large cash-financed deals, emphasizing that cash provides a strategic advantage in uncertain financial climates, where liquidity is valued over the risks associated with stock-based deals. 31 In contrast, stock-financed acquisitions tend to result in negative short-term abnormal returns due to concerns about potential overvaluation and equity dilution. Investors may interpret stock payments as a signal that the buyer's shares are overvalued, leading to assumptions that the acquirer is using inflated equity to finance the deal. Fuller, Netter, and Stegemoller (2002) found that stock-financed public acquisitions produced negative CARs of approximately -1.1%. Moeller et al. (2005) confirmed these findings, showing that large stock-financed acquisitions generated a negative CAR of approximately -1.4%, driven by concerns about integration challenges and potential overpayment. Mixed payment methods, which combine both cash and stock, offer a balanced ap- proach. These transactions provide flexibility, reducing the risks of substantial equity di- lution while maintaining liquidity. Although mixed-payment deals do not perform as well as cash transactions, they generally yield better outcomes than pure stock transactions. Faccio and Masulis (2005) found that mixed-payment acquisitions had moderate CARs of around 0.5%, with Alexandridis et al. (2013) observing that mixed-payment deals tend to perform particularly well in volatile markets, generating CARs of 0,5% to 1%, as inves- tors value the combined security of cash and equity. Market conditions have a significant effect on the performance of each payment method. Shleifer and Vishny (2003) found that stock-financed acquisitions tend to underperform during weak economic conditions due to increased concerns about overvaluation and dilution. However, during periods of strong market growth, rising stock prices can offset these concerns, leading to more favorable investor reactions. On the other hand, cash- financed transactions are preferred in volatile or uncertain market conditions. Dittmar and Thakor (2007) found that cash-financed transactions generated higher CARs during periods of market volatility, implying greater stability for investors. Alexandridis et al. (2013) supported this trend, reporting a CAR of up to 2.3% for large cash-financed acqui- sitions in uncertain markets. 32 In the Nordic countries, particularly in Finland, the smaller size of companies and the local nature of the market can limit the use of large cash payments in acquisitions. Finn- ish buyers often use stock or mixed payment methods, especially in cross-border trans- actions, as these deals frequently involve larger target companies (PwC, 2024). Acquirer Size: Small vs. Large Firms The size of the acquiring company plays a critical role in determining the short-term stock performance after an acquisition. Smaller acquirers tend to experience more positive market reactions because acquisitions generally have a greater impact on their growth potential and future profitability. Studies have shown that smaller acquirers typically achieve a CARs of about 2% to 2.5% in the short term (Moeller et al., 2005). One reason for these better results is that smaller companies can complete acquisitions more quickly and efficiently, delivering value faster, which is reflected in favorable market reactions (Alexandridis et al., 2013). In contrast, larger acquirers often face more challenging market reactions. Investors may view large acquisitions as riskier due to potential integration difficulties, overpayment concerns, and the complexity of realizing post-acquisition synergies. For example, Conn et al. (2005) found that large acquirers often recorded negative CARs in cross-border transactions, often due to higher risks associated with regulatory oversight, cultural dif- ferences, and complexity of integration. Similarly, Moeller et al. (2005) found that larger acquirers consistently recorded lower or negative short-term returns, with CARs ranging from -0.5% and -1.1%. One factor is that large companies typically acquire smaller tar- gets, where the added value from the acquisition is relatively smaller compared to the size of the acquiring company. In addition, large acquisitions may face more regulatory scrutiny, and the integration process of the target firms may be more complex and time- consuming, further reducing short-term performance (Das, 2021). Larger companies are also more exposed to post-acquisition integration risks, especially in cross-border deals. Functional, cultural, and legal differences between the acquirer 33 and target can create significant challenges that negatively affect short-term stock per- formance (Das, 2021. Conn et al. (2005) further noted that in cross-border transactions, large acquirers faced additional barriers due Cross-Border vs. Domestic Acquisitions in the Nordic Region Research consistently shows that domestic acquisitions generally produce more favora- ble short-term stock performance than cross-border transactions, primarily due to lower integration risks and familiarity with local operations. Moeller et al. (2005) found that domestic acquisitions in the U.S. yielded CARs ranging from 1.5% to 2% in a three-day observation window around the announcement date. Similarly, Alexandridis et al. (2010) found that domestic acquisitions in Europe generated an average CAR of 2%, reflecting investor confidence in the acquirer’s ability to manage the target company more effec- tively due to familiarity with local regulations and cultural alignment. These findings are further supported by Gregory and O´Donohoe (2014), who observed that domestic acquiring companies in Europe and the UK consistently outperformed their cross-border counterparts. Their study showed that industry-related domestic ac- quisitions resulted higher CARs of 3.6%, while cross-border acquisitions yielded CARs of only 1.8%. The superior performance of domestic acquisitions is due to the acquirer’s better ability to navigate local regulatory frameworks and manage cultural factors, re- sulting in more successful integration leading to positive market reactions. Conversely, cross-border acquisitions often result in negative short-term returns for ac- quirers due to the complexity of managing foreign operations. Conn et al. (2005) found that cross-border acquisitions by UK acquirers resulted in a negative CAR of -0.8%, as domestic acquisitions tended to yield positive abnormal returns. Georgen and Renneboog (2004) also found that cross-border acquisitions by European firms often re- sulted in lower abnormal returns compared to domestic acquisitions, due to market an- ticipation of integration issues and regulatory barriers. Similarly, Moeller et al. (2005) reported negative CARs of -0.7% to -1.2% for cross-border acquisitions in the U.S., often 34 due to similar factors as in Europe such as, regulatory differences, cultural barriers, and integration issues. Acquirers in politically and economically unstable regions, such as emerging markets, face even greater risks. Eun et al. (2014) found that acquirers in these regions reported negative CARs ranging from -1% to -1.5%, highlighting the increased risks associated with cross-border transactions in volatile environments. Sector-Specific Performance: Conglomerates vs. Industry-Related Deals The effectiveness of acquisitions can vary significantly depending on whether they are industry-specific or conglomerate deals. Industry-related acquisitions tend to perform better in the short-term as they offer greater potential for synergy benefits through op- erational efficiencies, economies of scale, and enhanced market consolidation. Investors often react positively to these deals, as the strategic fit between the acquiring and target companies can lead to a smoother integration process and quicker realization of value. Singh and Montgomery (1987) found that industry-related acquisitions typically gener- ate cumulative abnormal returns (CARs) of 1.5% to 2.5%, as investors expect better fi- nancial performance from companies that can effectively combine operations. Martynova and Renneboog (2011), supported these findings, as they reported positive abnormal returns of 2-3% for European acquirers involved in industry-related deals. IN sectors like technology, renewable energy, and pharmaceuticals, where industry-related acquisitions are more common, the ability to integrate operations and leverage existing expertise has a positive impact on investor confidence. This often results in favorable short-term stock performance. In contrast, conglomerate acquisitions, where companies acquire targets from unrelated industries, tend to yield weaker or even negative returns. Investors are often skeptical about the strategic fit and potential synergies of these deals, especially when there is limited overlap between the acquirer and target companies core operations. The lack of 35 clear synergies raises concerns about the complexity of managing a diversified portfolio. Morck et al. (1990) found that conglomerate acquisitions typically resulted in negative CARs ranging from -0.5% to -1%, as the integration of different businesses increase op- erational risks and management challenges. Castellaneta and Conti (2017) confirmed these findings in more recent studies, showing that conglomerate deals continue to un- derperform compared to industry-related acquisitions. Research has consistently shown that industry-related acquisitions produce more favor- able cumulative abnormal returns (CAAR) compared to multi-industry acquisitions. In- vestors often expect industry-related acquisitions to bring operational synergies and market consolidation benefits, leading to favorable short-term stock performance. Singh and Montgomery (1987) found that cross-industry acquisitions that combine comple- mentary assets and economies of scale typically yield CAARs of 1.5% to 2.5%. More re- cent study by Fich et al. (2018), confirmed these findings, showing that industry-related acquisitions often result in CAARs of 2% to 3%, as the operational efficiencies and re- duced duplication that firms in the same industry can exploit. Similarly, Martynova and Renneboog (2011) reported that European acquirers involved in industry-related deals experienced CAARs of 2% to 3%, mainly due to the realization of expected synergies. On the other hand, conglomerate acquisitions usually lead to more modest or even neg- ative short-term stock price reactions. Market skepticism around the acquirer’s ability to derive value from unrelated businesses contributes to these outcomes. Morck et al. (1990) found that conglomerate acquisitions often generate negative CAARs between - 0.5% and -1%, as investors question the strategic fit and value-creation potential of these transactions. These concerns are repeated in more recent findings by Castellaneta and Conti (2017), who found negative CAARs between -0.5% and -1% for conglomerate deals, due to the complexities and inefficiencies that often arise when a firm attempts to inte- grate an unrelated business. 36 Recent trends indicate that industry-specific performance has evolved, particularly in sectors that have adapted to changing market conditions. Sectors like energy, healthcare, and technology have seen strong M&A activity, with investors increasingly valuing sus- tainability and digital transformation. For example, Alexandridis et al. (2020) found that renewable energy acquisitions produced CAARs of 2% to 3.5%, reflecting optimism for the clean energy transition. On the other hand, sectors such as finance have experienced more modest returns, with CAARs ranging from 0.5% to 1%, often due to the complexity of integration (Altunbas & Marques-Ibanez, 2008). 37 5 Data and Methodology This part of the study presents the dataset and methodologies used to conduct an event study analyzing the impact of merger and acquisition (M&A) announcements on the stock performance of acquiring companies listed on the OMX Helsinki stock exchange. This section first describes the data collection process, focusing on the selection criteria to ensure a robust and representative sample. Then, the methodologies are introduced, capturing the market reactions to M&A announcements by analyzing abnormal returns over specific event windows. Finally, the statistical methods used to assess the signifi- cance of the results are presented, including the calculation of the Cumulative Abnormal Return (CAR) and Cumulative Average Abnormal Return (CAAR). This structured ap- proach provides insights into the short-term effects of M&A announcements on stock prices. 5.1 Data The dataset for this thesis consists of M&As of Finnish companies listed on the OMXH Helsinki stock exchange, covering transactions announced and completed between years 2014 and 2023. Data is gathered from LSEG Workspace provided by Senior Researcher Jaakko Tyynelä from the University of Vaasa. LSEG Workspace provides detailed infor- mation for each transaction, such as contract values, announcement dates, acquisition types, payment methods, percentage acquired, industry classifications and nationalities. This study focuses solely on publicly listed companies, as data for private and unlisted companies is often unavailable or challenging to find (Moeller et al., 2004). In line with standard practices in M&A research, only mergers and acquisitions were included in the dataset. Transactions such as leveraged buyouts (LBOs) and management buyout (MBOs) were excluded to maintain sample consistency, as these types of deals differ significantly from traditional M&A in terms of structure and financing (Ghosh, 2001). 38 To ensure the relevance and comparability of the dataset, special criteria were applied. Transactions had to be disclosed and completed within the specified period, with a min- imum transaction value of €1 million, so that the smaller, potentially insignificant acqui- sitions would not affect the results of the investigation (Martynova & Renneboog, 2008). Acquirers were required to own 100% of the target company’s shares post-transaction, with the acquisition involving at least 50% of the target’s shares so that the deal is mean- ingful enough. All companies that had delisted from OMX Helsinki during the study pe- riod were removed to ensure accurate and consistent tracking across the timeframe. For an acquisition to be considered industry-related, both the acquirer and target were required to belong to the same macro and mid-level industry classifications, based on the criteria provided by LSEG Workspace that organize companies into detailed indus- tries and sub-sectors. Transactions where the buyer and target were not grouped into the same categories were classified as conglomerate transactions. Additionally, to pre- vent confounding effects, any acquirer involved in more than one M&A transactions within the estimation period prior to an announcement was excluded from the sample. After these adjustments, the original data set of 2,496 acquisitions was refined to a final sample of 88 acquisitions that met all the necessary criteria. Table 1 provides a compre- hensive overview of the characteristics for the final dataset used in this study. Market values for acquiring companies were measured four weeks before the M&A an- nouncement to establish a baseline unaffected by announcement-related effects. The companies were classified by market values according to Nasdaq Helsinki definitions: small-cap companies have a market value of less than €150 million, mid-cap companies range from €150 million to €1billion, and large-cap companies have a market value ex- ceeding €1 billion (Nasdaq Helsinki, 2024). This strict selection process ensures that the dataset provides a robust basis for analyzing the impact of M&A announcements on the short-term stock performance of Finnish acquirers. 39 Table 1. Characteristics of M&A Transactions in the Dataset To ensure consistency, the material was aligned with the trading calendar of the Finnish stock markets, excluding non-trading days, such as weekends and holidays. This adjust- ment applied to both the OMX Helsinki index and share price data, ensuring that only active trading days were included in the analysis, thereby avoiding distortions caused by 40 entries of zero values. M&A announcements made outside the trading hours, such as after the market closure, on weekends or public holidays were assigned to the next avail- able active trading day for analysis. Stock and OMX Helsinki index data were naturally synchronized according to the same trading schedule. The 3-month Euribor interest rate obtained from the Bank of Finland adjusted to match the stock market trading days. On non-trading days, the most recent Euribor value was used to maintain logical and consistent logarithmic return calculations. The 3-month Eu- ribor was chosen as the risk-free interest rate due to its stability, wide use in economic research, and suitability for short-term event studies. The logarithmic return of the Euribor rate was calculated in the same way as stock prices and the OMX Helsinki index. Special attention was paid to the handling of transitions between negative and positive Euribor values by calculating returns based on absolute interest rates and considering significant changes precisely. These adaptations ensured the consistency of the data and supported a reliable analysis of the effects of announce- ments of mergers and acquisitions on the Finnish market. 5.2 Event Study Methodology The purpose of this study is to examine the impact of specific events on company value, focusing on mergers and acquisitions (M&A). Therefore, this study uses event study methodology, a widely recognized approach in Finance. This methodology was first in- troduced by Fama, Fisher, Jensen & Roll (1969) in their study of the efficient market hy- pothesis, where they analyzed how stock prices react to new public information. Their study demonstrated that markets are efficient, as stock prices quickly adjusted to new information. Since then, event study methodology has become a commonly used ap- proach to study whether M&A announcements create or destroy shareholder value. MacKinlay (1997) further expanded the event study methodology, analyzing the impact of specific events such as M&A announcements, earnings releases, debt issuances on 41 stock performance. This approach is based on financial market data, especially focusing on the prices of securities over an event window to capture the effect of an event. Event studies are based on the efficient market hypothesis, which expects stock prices to react all available information. A key metric in this context is the cumulative abnormal return (CAR), for the specific period after the event (MacKinlay, 1997). MacKinlay (1997) outlined a four-step approach for conducting an event study to capture the impact of certain events on stock performance. The first step is to define the event of interest. In this study, the event of interest is an announcement of an M&A, where the event day or day 0 represents the date, the announcement becomes public. Next, an event window, including the days before and after the announcement, is selected to cap- ture both the anticipated and lagged stock price movements. Usually, event windows estimate short-term ranges such as [-1, +1] and longer periods such as [-10, +10]. After defining the event window, an estimation window is selected, which typically covers 120- 250 days before the event window. By using the market model, the estimation window captures the stock's normal returns without the effect of the event. The final step is to calculate abnormal returns, so that the effect of the event on stock prices can be ana- lyzed. (MacKinlay, 1997) The event study methodology utilizes the market model to estimate expected returns for each stock. The market model assumes a linear relationship between the return of a specific stock (R"#)and the return of the market (R$#), expressed as follows: R"# = 𝛼% + 𝛽%𝑅&' + 𝜖%', (1) In this equation 𝑅%' represents the return on stock 𝑖 at time 𝑡, and 𝑅&' is the return on the market index (in this study, the OMX Helsinki index) at time 𝑡. Parameters α" and 𝛽% are key to the model, where 𝛼% represents the average return of the stock independent of market movements, and 𝛽% captures the stock’s sensitivity to market fluctuations. The error term 𝑒%' , representing unsystematic risk, is assumed to have an expected value of 42 zero E(𝑒%') = 0 and constant variance 𝑣𝑎𝑟 (ϵ"#) =  σ(") , indicating that variations from ex- pected returns are considered random and uninfluenced by external factors. In this study, parameters 𝛼% and 𝛽% are estimated using stock price data from the 250 trading days prior to the event window. The estimation window ends 41 days before the event to avoid any impact of event-related information. This approach is consistent with MacKinlay’s (1997) recommendations for establishing a robust baseline for expected re- turns under normal market conditions. Additionally, while there is no specific rule for the duration of an estimation window, Brown and Warner (1985) suggest that windows exceeding 100 days typically generate reliable results. Based on these recommendations and data availability, this study uses estimation window that concludes 41 days before the event, minimizing the risk of information leakage affecting the estimated parameters. This study uses three event windows to analyze how the market reacts to M&A an- nouncements: a short-term window of [-1, +1] and longer-term windows of [-5, +5] and [-10, +10]. The short window captures the immediate market reaction, which is often expected to be the most pronounced. Longer-term windows allow for the detection of potential information leakage or prior the announcement or any delayed market reac- tions afterwards. These windows are commonly used benchmarks in corporate finance research for studying market reactions to M&A announcements (Brown & Warner, 1985; MacKinlay, 1997). These windows ensure that any significant variations in stock prices are captured while providing a comprehensive picture of both the immediate and de- layed responses. 43 Figure 4. Description of Estimation Window and Event Windows Calculation Model This study analyzes the short-term market reactions to M&A announcement for compa- nies listed on the OMX Helsinki (OMXH), therefore using the OMXH index as a bench- mark to calculate the abnormal returns. This approach makes it possible to compare the effects of M&A announcement with regular market movements, isolating the effects of the event from general market movements. The analysis begins by calculating the logarithmic returns, which are preferred in statis- tical analysis due to their ability to handle compounding effects and provide a consistent measure of stock performance over time (MacKinlay et al., 1997). The logarithmic return formula for 𝑅' is calculated as shown below: 𝑅' = ln 9 𝑅𝐼' 𝑅𝐼' − 1 = (2) Where 𝑅𝐼' represent the total return index for trading day 𝑡, and 𝑅𝐼' − 1 is the total return index for previous trading day. This approach ensures that returns are consist- ently calculated using only available trading data, effectively accounting for non-trading days. 44 In the market model, the parameters 𝛼% and b% are estimated using ordinary least squares (OLS) regression. These parameters are essential for calculating the expected returns for the stock. They are shown in equations (3) and (4). 𝛼?% = 𝜇̂% − 𝛽B%𝜇̂& (3) 𝛽B% = ∑ (𝑅%' − 𝜇̂%)(𝑅&' − 𝜇̂&) *! '+*",- ∑ (𝑅&' − 𝜇̂&)) *! '+*",- (4) Here, aF% is the tock-specific intercept, and 𝜇̂% and 𝜇̂& are the average returns for the in- dividual stock and the market index (OMXH). The coefficient 𝛽B% reflects the sensitivity of stock 𝑖 to market movements, calculated as the covariance between the stock’s re- turn and the market’s return divided by the variance of the market return. To measure the stock’s unsystematic risk, which is not explained by the market model, the variance of the error term , 𝜎.%) , is calculated as follows: 𝜎?/# ) = 1 𝐿- − 2 I J𝑅%' − 𝛼?% − 𝛽B% 𝑅&'K ) *! '+*",- (5) Where, 𝐿- represents the length of the estimation window. The variance 𝜎?/# ) measures the deviation of the actual stock returns from expected returns predicted by the mar- ket model. To capture the stock returns that are not explained by the market model, abnormal re- turns (AR) are calculated as the difference between the actual stock returns and the ex- pected returns derived from the market model. The formula for AR is as follows: 𝐴𝑅%' = 𝑅%' − J𝛼?% + 𝛽B%𝑅&'K (5) 45 Following abnormal return calculations, the next step is to calculate the average abnor- mal returns (AAR) for each stock in the sample. The average abnormal return at time 𝑡 is calculated as follows: 𝐴𝑅' = 1 𝑁I𝐴𝑅%' 0 %+- (6) Where 𝐴𝑅' represent the average abnormal return at time 𝑡, 𝑁 is the total number of stocks used in the sample, and 𝐴𝑅%' refers to abnormal return for stock 𝑖 at a time 𝑡. To capture the total impact of an M&A announcement over the event window, cumula- tive abnormal returns (CAR) are calculated by summing the abnormal returns over the specified period: 𝐶𝐴𝑅%(𝑡-, 𝑡)) = I 𝐴𝑅%' '$ '+'! (7) The cumulative abnormal return represents the total abnormal return for stock 𝑖 over the event window from time 𝑡- to 𝑡), offering a comprehensive view of the stock’s per- formance surrounding the M&A announcement. Next, cumulate average abnormal returns (CAAR) can be calculated by averaging the CAR across all stocks in the sample: 𝐶𝐴𝑅(𝑡-, 𝑡)) = 1 𝑁I𝐶𝐴𝑅 0 %+- (𝑡-, 𝑡)) (8) 46 Here, 𝐶𝐴𝑅% (𝑡-, 𝑡)) represents the cumulative average abnormal returns for the stocks in the sample over the specified event window from 𝑡-to 𝑡), and 𝑁 represents the total number of securities. The final step is to test the statistical significance of the abnormal returns using t-tests. According to Brown and Warner (1985), commonly used significance levels for 𝑡-tests are 1%, 5%, or 10%. This study uses 𝑡-tests to examine whether the AAR or CAAR is sta- tistically different from zero, indicating whether the event had an effect on stock prices. If the 𝑡-statistic is sufficiently large, the null hypothesis can be rejected, concluding that the event had a significant impact on stock prices (Brown & Warner, 1985). The first t- test formula is as follows: 𝑡 = 𝐴𝐴𝑅/𝐶𝐴𝐴𝑅 𝜎√𝑁 (9) This formula analyzes the average or cumulative abnormal returns (𝐴𝐴𝑅/𝐶𝐴𝐴𝑅), ad- justed by the standard deviation 𝜎 and normalized by the square root of the sample size √𝑁. A second t-test formula is: 𝑡 = 𝑤 − 𝑁 0.5 𝜎√𝑁 0.5 0.5 (10) Second formula evaluates how significantly another variable, 𝑤 deviates from its ex- pected value. This allows study to assess additional aspects of the stock’s performance surrounding the event. 47 6 Results This section of the study presents the key findings of the study, starting with the analysis of the full sample to evaluate the main Hypothesis (H1): that M&A announcements gen- erate positive abnormal returns for the shareholders of the acquiring companies. The following subsections delve into specific deal characteristics, such as payment method, acquirer size, geographical scope, and transaction type to analyze their influence on these market reactions. 6.1 Event Studies The descriptive statistics of Average Abnormal Returns (AAR) for the full sample are out- lined in Table 2. The analysis covers the period from 10 days before to 10 days after the event day and provides a comprehensive overview of the market reactions. The results reveal that the event day (Day 0) had the highest abnormal return with an AAR of 3,14%, which is statistically significant at the 1% level. These findings indicate that M&A an- nouncements have strong and immediate positive market reactions. This positive re- sponse is in line with the Hypothesis 1, which states that M&A announcements generate positive abnormal returns for acquirer shareholders. Furthermore, on day 0 there were 63 positive reactions compared to 25 negative, further supporting this hypothesis. The day following the announcements (Day 1) also experienced a significant positive re- action, with an AAR of 1,05%, significant at the 1% level. The cumulative results for the event window [0, +1] reveal a total AAR of 4,2%, further confirming that M&A announce- ments create immediate shareholder value. 48 Table 2. Descriptive Statistics of Average Abnormal Returns (AAR) The T-statistics are shown in parentheses below each coefficient, with *, **, and *** indicating statistical significance at the 10%, 5%, and 1% levels. The dynamics of AAR and Cumulative Average Abnormal Returns (CAAR) over a wider time frame, from 20 days before the event to 20 days after the event, is illustrated in Figure 5. The data reveal no evidence of significant information leakage prior to the an- nouncements, as the CAAR on day -2 stood at -0,90%, and the AAR for day -1 was almost zero (0,01%). The announcement day (Day 0) triggered a significant increase in CAAR, which went from -0,89% on Day -1 to 2,26% on Day 0. This positive momentum was maintained persisted during the short-term event window, culminating in a CAAR of 3,32% by the end of [0,+1] period. Post-acquisition, AARs showed volatility as there was negative returns recorded on Days 2 (-0,17%), 3 (-0,49%), and 4 (-0,22). Despite these fluctuations, the cumulative effect remained favorable, with CAARs of 2,92% on Day 10 and 2,80% on Day 20, suggesting that M&A announcements generate lasting positive abnormal returns. 49 Figure 5. Market Reactions – Average Abnormal Returns (AAR) and Cumulative Average Abnormal Return (CAAR) The robustness of these findings is further supported by Table 3, which summarizes the CAAR values in various event windows. The CAAR for the [-1,+1] window was 4,2%, sig- nificant at the 1% level. Similarly, the [-5.+5] and [-10,+10] windows exhibited CAARs of 3,0% and 3,5%, respectively, both significant at the 1% level. These results demonstrate consistent and statistically significant positive abnormal returns across all event windows analyzed. Table 3. Cumulative Abnormal Returns (CAAR) and Statistical Significance – Full Sample The T-statistics are shown in parentheses below each coefficient, with *, **, and *** indicating statistical significance at the 10%, 5%, and 1% levels. 50 Deal Type Analysis The second hypothesis examined the effect of payment methods on short-term abnor- mal returns. Hypothesis (2a) proposed that cash-financed acquisitions would generate higher returns than stock-financed deals. Hypothesis (2b) suggested that mixed-payment acquisitions would outperform stock-financed deals but generate lower returns than cash-financed transactions. The results for cash-financed deals demonstrated a CAAR off 4,0% in the [-1,+1] event window, statistically significant at the 1% level. Longer event windows also maintained positive returns, with CAARs of 3,4% for [-5, +5] and 3,7% for [-10, +10], both statistically significant at the 5% level. These findings suggest a robust market reaction to cash pay- ment announcements, consistent with signaling theory, which assumes that cash pay- ments signal reduced uncertainty and financial strength (Faccio & Masulis, 2005; Martynova & Renneboog, 2009). Despite these strong returns, cash-financed deals did not outperforme all other deal types in this study, as stock-financed acquisitions re- ported highest CAAR values. Stock-financed deals exhibited a CAAR of 4.4% in the [-1, +1] window, exceeding the returns of cash-financed deals. However, this result was not statistically significant, likely due to the small sample size of six observations. While the existing literature often asso- ciates stock-financed deals with lower profitability, the findings of this study challenge the hypothesis 2a, indicating that stock-financed transactions can sometimes generate competitive or even higher returns than cash-financed deals. Mixed-payments achieved a CAAR of 3.6% for the [-1, +1] window, statistically significant at the 1% level. This outcome supports the notion that mixed-payment acquisitions can generate positive returns, although generally lower than cash-financed acquisitions. Mixed-payment transactions in this study did not, however, perform better than stock- financed transactions, which goes contrary to Hypothesis 2b. 51 Overall, these findings did not support Hypotheses 2a and 2b. While cash-financed and mixed-payment deals showed strong and statistically significant returns, the higher CAAR for stock-financed acquisitions, although statistically insignificant, contradicted both hypotheses. Consequently, the results align with the null hypotheses for both 2a and 2b. Table 4. CAAR and Statistical Significance by Deal Type The T-statistics are shown in parentheses below each coefficient, with *, **, and *** indicating statistical significance at the 10%, 5%, and 1% levels. Acquirer Size Analysis The third hypothesis (H3) proposed that acquisitions by small companies generate higher abnormal returns compared to larger firms, reflecting their greater growth po- tential and ability to achieve synergies. The results, as presented in Tables 5 and 6, sup- port this hypothesis. Small-cap companies demonstrated strong market reactions, achieving a CAAR of 7,0% in the [-1, +1] event window, statistically significant at the 1% level. This favorable per- formance extended to longer event windows. The CAAR was 5,5% for [-5, +5], also sig- nificant at the 1% level, and 3,5% for [-10, +10], statistically significant at the 5% level. These results indicate that investors perceive acquisitions by smaller firms to have 52 greater value creation potential, likely due to their ability to exploit synergies and growth opportunities more effectively. Table 5. CAAR and Statistical Significance – Small-Cap Companies The T-statistics are shown in parentheses below each coefficient, with **, and *** indicating statistical significance at the 5%, and 1% levels. In contrast, the market reactions to acquisitions by large-cap companies was more mod- erate. For the [-1, +1] event window, large-cap companies produced a CAAR of 2,2%, statistically significant at the 1% level. However, the returns decreased over the longer windows, with CAARs of 2,1% for [-5, +5], significant at the 10% level, and 2,4% for [-10, +10], which was not statistically significant. These results suggest that the market reacts less favorably to acquisitions by larger firms, possibly due to lower expectations of syn- ergies or growth potential. Table 6. CAAR and Statistical Significance – Large-Cap Companies The T-statistics are shown in parentheses below each coefficient, with * and *** indicating statistical significance at the 10% and 1% levels. Overall, the findings align with Hypothesis 3, confirming that smaller companies gener- ate higher abnormal returns compared to larger acquirers. This conclusion is consistent with previous studies, such as Harford (2005) and Alexandridis et al. (2010), who suggest that smaller firms are in a better position to achieve meaningful synergies and take ad- vantage of growth opportunities, leading to stronger market reactions. 53 Geographical Scope Analysis The fourth hypothesis (H4) posited that domestic M&A would generate higher abnormal returns for acquirers compared to cross-border transactions, primarily due to complexi- ties associated with cultural differences, regulatory challenges and integration in cross- border deals. The findings are summarized in Tables 7 and 8, partially support this hy- pothesis, although there is notable variation across event windows. For domestic acquisitions, the CAAR for the key [-1,+1] window was 4,1%, statistically significant at the 1% level, indicating a strong immediate market reaction. Positive re- turns persisted over longer event windows, with CAAR of 3,8% for [-5, +5], significant at the 1% level and 2,9% for [-10,+10], significant at the 5% level. These results confirm that domestic acquisitions consistently generate significant abnormal returns, especially in the short run, as shown in Table 7. Table 7 CAAR and Statistical Significance – Domestic M&As The T-statistics are shown in parentheses below each coefficient, with **, and *** indicating statistical significance at the 5%, and 1% levels. Cross-border acquisitions also produced positive returns but fell slightly short of domes- tic transactions in shorter transaction windows. For the [-1, +1] window, cross-border acquisitions achieved a CAAR of 3,6%, significant at 1% level. In longer windows, perfor- mance was more variable, with a CAAR of 2.5% [-5, +5], significant at the 5% level and 3.4% [-10, +10], also significant at the 5% level. These results Summarized in Table 8, suggest that although cross-border acquisitions generate substantial returns, they tend to underperform domestic acquisitions in the short term but may catch up in the longer run. 54 Table 8. CAAR and Statistical Significance – Cross-Border M&As The T-statistics are shown in parentheses below each coefficient, with **, and *** indicating statistical significance at the, 5%, and 1% levels. Overall, these results support partial hypothesis 4. Domestic acquisitions outperformed cross-border acquisitions at shorter [-1, +1] and [-5,+5] windows, with stronger short- term market reactions. However, in the longer [-10, +10] window, cross-border acquisi- tions slightly outperformed domestic acquisitions, with a CAARs of 3,4% and 2,9%, re- spectively. These mixed results suggest that while domestic acquisitions provide imme- diate shareholder value, cross-border transactions can offer competitive returns over time. Thus, the findings partially support hypothesis 4, but the null hypothesis cannot be definitively rejected. Industry-Related and Conglomerate M&A Transactions The fifth hypothesis (H5) proposed that M&As within the same industry would generate higher abnormal returns than conglomerate transactions. The results of this study sum- marized in Tables 9 and 10, challenge this assumption and reveal that conglomerate M&As consistently outperformed industry-related deals across all event windows. For industry-related acquisitions, the CAAR for the [-1, +1] window was 2,4%, statistically significant at the 1% level. Over the longer windows, performance slightly declined, with a CAAR of 2,3% for [-5, +5], also significant at the 1% level, and 1,9% for the [-10, +10], which was not statistically significant. Although industry-related acquisitions showed strong short-term market reactions, their impact diminished over time, suggesting that perceived synergies do not necessarily translate into shareholder value. 55 Table 9 CAAR and Statistical Significance – Industry-Related M&As The T-statistics are shown in parentheses below each coefficient, with *, **, and *** indicating statistical significance at the 10%, 5%, and 1% levels. In contrast, conglomerate M&As outperformed industry-related acquisitions across all analyzed event windows. The [-1, +1] window produced a CAAR of 5.5%, significant at the 1% level, indicating a stronger immediate market reaction. The longer-term windows also performed robustly, with CAARs of 3,9% for [-5, 5+] and 4,7% for [-10, +10], both statistically significant at the 1% level. These results highlight that diversification strate- gies associated with cross-industry transactions may resonate more positively with mar- ket participants and provide greater perceived or realized value compared to industry- specific acquisitions. Table 10. CAAR and Statistical Significance – Conglomerate M&As The T-statistics are shown in parentheses below each coefficient, with *** indicating statistical significance at the 1% levels. These findings contradict the Hypothesis 5. Contrary to expectations, conglomerate M&As consistently produced higher abnormal returns than industry-related transactions in all event windows. This outcome supports the null hypothesis and highlights that di- versification through conglomerate acquisitions can provide acquirers with broader op- portunities for value creation, possibly due to enhanced risk mitigation and access to multiple revenue streams. The results suggest that, in the context of this study, the mar- ket favors diversification strategies over industry-focused consolidation. 56 7 Summary and Conclusions This study focused on the short-term stock performance of acquiring companies listed on the OMX Helsinki (OMXH) following M&A announcements. The motivation stemmed from inconsistent findings in previous research and the lack of evidence available from Finland. To explore this specific area the study began with an extensive review of M&A literature, followed by the presentation of the data used and an empirical analysis of 88 M&A transactions completed between 2014 and 2023. Using the event study method- ology, abnormal returns (AR) and cumulative abnormal returns (CAR) were calculated to evaluate the market reactions. The findings revealed that M&A announcements gen- erate significant short-term returns for shareholders, with the strongest effects observed from the shortest [-1, +1] event window. The primary hypothesis posited that M&A announcements generate positive abnormal returns, was confirmed. The cumulative average abnormal return (CAAR) for the [-1, +1] window was 4,2%, significant at the 1% level, while the AR on the event day itself was 3,14%, also significant at the 1% level. These results highlight the immediate and signif- icant positive market reactions to M&A announcements. Further analysis of transaction characteristics revealed critical insights. Cash-financed transactions demonstrated strong and statistically significant positive returns, while mixed payment transactions also showed positive returns, but with less statistically sig- nificance. Surprisingly, stock-financed acquisitions recorded the highest returns, though their results were statistically insignificant, likely due to the small sample size. Smaller acquirers consistently outperformed larger companies, aligning with prior literature that highlights market’s preference for the growth potential of smaller companies. Domestic acquisitions outperformed cross-border acquisitions in shorter event windows, whereas cross-border transactions showed stronger performance in the longer [-10, +10] window, reflecting potential integration challenges and delayed synergy realization. Furthermore, conglomerate acquisitions outperformed industry-related deals, suggesting that diversi- fication strategies can offer unique advantages in the Finnish market. 57 Despite these valuable contributions, the study is not without limitations. A significant limitation was the relatively small sample size, especially in certain transaction types, such as stock-financed acquisitions, which may have reduced the statistical significance of the results. Furthermore, the study was conducted during a unique period of signifi- cant macroeconomic and geopolitical challenges. Between 2014 and 2023, historically low interest rates, averaging 0,165% (Suomen Pankki, 2024), played a crucial role in shaping financing strategies. These rates remained negative for 71 consecutive months, from December 2015 to March 2022, possibly making cash and mixed transactions more attractive and reducing the attractiveness of stock-financed deals. In ad