Do Mergers and Acquisitions Create Value for Acquirers? Short- and Long-Term Event Study on the Pharmaceutical Industry of Europe

In this thesis, the short- and long-term event study methodology are applied in order to assess whether M&As, in the pharmaceutical industry, create any abnormal return for the acquirer. The majority of the previous research finds a negative abnormal return but the short-term event study seems to generate slightly positive abnormal returns outside the U.S. There is a limited amount of research on the pharmaceutical industry, thus it is important to find out how the pharmaceutical industry specific conditions and other industry factors affect the performance. In the short-term event study, the cumulative abnormal return (CAR) is applied and in the long-term the buy- and hold abnormal return (BHAR) is exercised. The aim is to connect the performance to relevant theories to be able to explain the abnormal return within both time perspectives and to evaluate and explain the difference in performance between the short- and long-term event study. The abnormal return turned out to be significantly positive in the short-term event study and insignificantly positive in the long-term event study, independent of the applied benchmark. In the short-term, the result is in line with the previous research where positive abnormal returns are usually found, but positive abnormal returns in the long-term can be seen surprising since most of the previous studies find M&As value destroying in the long run. One important explanatory factor for the difference in performance between the time perspectives may be the efficient market hypothesis (EMH). The result indicates that M&As, in the pharmaceutical industry, seem to be beneficial for the shareholders or at least not value destroying. The thesis contributes to existing literature by strengthening the empirical results found from the value creation of M&As for the acquirers and adding research on the pharmaceutical industry of Europe which is still unsearched in some extent.