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The wealth effects of merger and acquisition announcements on bondholders: New evidence from the over-the-counter market - ScienceDirect
Source: www-sciencedirect-com.manchester.idm.oclc.org
Article summary:
1. This article examines the wealth effects of merger and acquisition announcements on bondholders, using transaction level data from Trade Reporting and Compliance Engine (TRACE).
2. The study finds that acquirer bondholders generally experience negative abnormal returns, while target bondholders experience positive abnormal returns.
3. The study also finds that target bondholders experience higher gains when the acquirer is a public firm rather than a private equity firm.
Article analysis:
The article provides an in-depth analysis of the wealth effects of merger and acquisition announcements on bondholders, using transaction level data from Trade Reporting and Compliance Engine (TRACE). The authors use recent methodological improvements to enhance test power and result in better specification, such as daily bond transaction data and standardized bond returns. The findings suggest that acquirer bondholders generally experience negative abnormal returns, while target bondholders experience positive abnormal returns. Additionally, the study finds that target bondholders experience higher gains when the acquirer is a public firm rather than a private equity firm.
The article appears to be reliable and trustworthy overall. It provides detailed evidence for its claims with references to relevant literature, as well as robustness checks of its findings. Furthermore, it acknowledges potential biases in its methodology by noting issues with matrix prices and dealer quotes, as well as long event windows which may capture the effect of other firm specific events unrelated to M&As.
However, there are some points of consideration which are not explored in the article. For example, it does not consider how different types of M&A deals (e.g., hostile vs friendly) may affect wealth effects for both acquirer and target bonds differently; nor does it explore how different types of financing (e.g., debt vs equity) may affect wealth effects for both acquirers and targets differently. Additionally, there is no discussion about possible risks associated with M&A announcements for both acquirers and targets; nor is there any discussion about whether or not these risks are taken into account when assessing wealth effects for both parties involved in an M&A deal.
In conclusion, this article provides an in-depth analysis of the wealth effects of merger and acquisition announcements on bondholders using reliable sources such as TRACE data; however there are some points which could have been explored further such as different types of M&A deals or financing options available to firms involved in an M&A deal, as well as potential risks associated with such transactions which should be taken