Asian Review of Financial Research Vol.20 No.1 pp.143-183
A Value-Based Event Study Approach：A Study on the Long-term Effects of M&A's
Key Words : Event Study,Value-based Event Study Analysis,Intrinsic Firm Value,Mergers and Acquisitions,Long-Term Effects
We develop an event study methodology which can be referred to the value-based event study analysis (hereafter called as “VESA”). This study is fundamentally based on the seminal works of Miller and Modigliani (1958, 1961, 1963). It is noteworthy that the valuation models can be used to estimate the intrinsic value of the firm, and some financial events may have impacts on the firm value changes. So if we can find that the firms experienced with some financial events have changed the intrinsic values, it is natural to say that the financial events incur the changes. In VESA approach, the intrinsic firm values will be measured by the intrinsic Q values (hereafter called as “IQ”).The following empirical findings about the long-term effects of M&A events are based on the VESA approach.First, in post-M&A samples, we find that the IQ values are lowered in the short-run, but in the long-run the IQ values are turned around to increase.Second, in the comparison of pre-M&A and post-M&A samples, we find the changes in IQ values in the short-run are not statistically significant, but they are significant in the long-run.In sum, the short-term effects are in line with the existing M&As literature, of which are mostly based on the traditional returns-based event study approach. The findings of long-term effects are unique in this paper.