An Analysis of Stock Price Reactions Influenced by Mergers and Acquisitions (M&A) in the healthcare industry

Abstract

This paper aims to empirically test the impact of Mergers and Acquisitions (M&A) announcements on stock prices within the European market, focusing specifically on the healthcare industry from 2008 to 2023. Employing event study methodology, the stock price responses to M&A announcements are examined, particularly looking at cumulative abnormal returns (CAR) across various event windows to assess shorter-term and longer-term market reactions. The analysis reveals that M&A announcements generally result in positive CAR for acquiring firms across the two longer event windows ([-30, +30] and [-30, + 60]), indicating that the market views these transactions as beneficial in creating long-term value. Specifically, the CARs are statistically significant in these windows for acquiring companies, implying that the perceived benefits of M&As for acquirers materialise over time. In contrast, the reactions for target firms show minimal to no significant CAR, especially in shorter windows ([-1, +1] and [-5, + 5]), reflecting a more cautious or conflicting investor perception regarding the immediate benefits of M&A for these companies. The study contributes to existing literature by detailing the differential impacts of M&A on acquiring versus target firms and by highlighting the influence of event window length on investor reactions. It emphasises the complexity of M&A effects on stock prices, implying that while acquirers may benefit from strategic growth opportunities, the advantages for targets are not always distinct or realised in the short term.