Mergers and acquisitions and their effects on stock performance: Evidence from Istanbul Stock Exchange (ISE)

In recent years, there is an increasing number of research about mergers andacquisitions. Mergers and Acquisitions (M&As) have been one of the favorablemethods of achieving growth targets and increasing shareholder value. A merger isthe unification of two or more firms into a new one, while an acquisition is onecompany?s purchase of the majority of the shares from another.This thesis investigates mergers and acquisitions and their effect onstockholders value. Also this thesis discusses the causes and implications of themerger waves and provides empirical evidence on the financial performance ofmerging firms in the Istanbul Stock Exchange (ISE). The stock performance beforeand after the merger announcements is investigated by employing cumulativeaverage abnormal returns (CAARs) from 1997 to 2006. The findings present thatM&A activities intensified after the 2001 financial crisis. However, it is important tonote that manufacturing firms waited to engage in M&A activities until the economywas relatively stabilized. Further, consistent with the previous studies, the findingssuggest that although the stock prices prior to merger announcements were morelikely to increase, this positive effect disappeared following the M&As.To verify the analyses, this study includes benchmark methodology forcomparing the merged firms? stockholders value with non-merged firms. There aretwo kinds of control firms which were used in this study. Control firms wereclassified according to ?market equity? and ?market to book ratio? of the mergedfirms. The findings show that the long-run post-takeover performance of the mergedfirm is better than it would have been without the merger. The benchmarkmethodology is also implemented for examining the reactions of stock price of nonmergedfirms in short-run, where the findings are consistent with long-run.Keywords: Mergers, Stock Returns, Istanbul Stock Exchange (ISE), Benchmarking