Mergers and Acquisitions in Malaysia: Do They Increase Shareholder Wealth?

Abstract

This study investigates the impact of merger and acquisition announcements on stock prices of bidding firms and target firms in Malaysia, using an event-study methodology. The sample consists of M&A announcements during the period from 1 January 2011 to 30 June 2015. The abnormal returns are derived by using two models, namely the market model (MM) and market adjusted returns (MAR) model. FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI) and FTSE Bursa Malaysia EMAS Index (FBMEMAS) are used as the benchmarks. The results of this study reveal positive abnormal returns for the target firms on the announcement day. The results for the multi-day windows around the announcement day also indicate positive cumulative average abnormal returns for both models and benchmarks. In contrast, statistically insignificant results are observed for the bidding firms on the announcement day and also in the multi-day windows. The plausible reasons for the statistically significant positive returns for target firms but insignificant results for the bidding firms include the target firm’s shares are undervalued, the bidder offers a significant premium to the target firm’s previous stock price and the managers misevaluate the target firm.