Study 2: Does Operating Performance Meet Market Expectations?

In the past, empirical research has applied two approaches to assess the performance of mergers and acquisitions (M&A): one evaluating stock returns (event studies) and one evaluating accounting profits (accounting studies). Although both approaches have been frequently applied over the last decades, only event studies have converged towards a consistent conclusion about the value creation potential of M&A: While the transactions seem to initially create value for the combined entities (Bruner (2002)), slightly negative announcement returns for acquirers are found to turn into consistent and significant value losses in long-term event studies. By contrast, accounting studies yield a more ambiguous view on the overall value creation potential as conclusions in different studies vary from significant performance losses to significant gains. However, since accounting studies evaluate actual past performance of acquirers, understanding the determinants behind long-term operating performance is key to the longterm success of companies engaging in M&A activity.