Mergers and Acquisitions in Recession Periods

Abstract

This paper investigates the returns on M&A transactions for shareholders of acquiring companies in times of crisis in Brazil. Our results are related to previous literature by Brown and Sarma (2007), Malmendier and Tate (2005), and Malmendier and Tate (2008). Our paper contributes to the aforementioned research by relating executives’characteristics to M&A returns in times of crisis. We adopt the event study method to calculate abnormal returns and use multiple linear regression and propensity score matching techniques to connect returns to executive and firm variables. We found positive average abnormal returns (between 1.8% and 3.3%) for M&A transactions carried out during recession periods in Brazil. In addition, we identify that abnormal returns during periods of crisis and expansion differ substantially. Finally, we show that executives with a graduate level academic background and less time in the company’s management are associated with positive abnormal returns during crises. This article assesses the existence of abnormal returns in M&A operations by considering three distinct moments of crisis. The study also links abnormal returns to company variables and executive characteristics. Previous research emphasizes the panorama of acquisition operations, synergies, cross-border acquisitions, and value creation. Therefore, we believe that our paper is pioneering in presenting results on abnormal M&A returns during crisis periods in Brazil.