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The Impact of Target Financial Trends on Bidder Announcement Return: Empirical Evidence from the Norwegian M&A Market

Torget, Guro; Grindstad, Marthe Siem
Master thesis
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URI
https://hdl.handle.net/10642/7748
Date
2019
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  • SAM - Master i Økonomi og administrasjon – siviløkonom [308]
Abstract
We study the relationship between bidder announcement return and prior target financial

development in the Norwegian takeover market. Based on a sample of 120 acquisitions of

primarily private targets, we find that changes in financial ratios relative to the sample

standard deviation provide more explanatory power than absolute ratio levels.

Our results indicate that target size and trends in asset turnover have a statistically significant

influence on the announcement return. On the one hand, the market is positively

related to target size, yet it has a negative development in asset turnover on the other hand.

We further find that the impact of the dynamic accounting characteristics is time-dependent,

meaning that the importance of these variables changes over time. The trend measure of

leverage is significant in the period between 2006-2016, indicating that this variable contributes

to explain the announcement return in this particular period. The trend measures

of liquidity and net profit margin are, however, not statistically significant in any of the

short-term windows.

Reviewing our results, we summarize that the shareholders of the bidding firm are most

optimistic about the announcement when the target firm is large in size and with a decreasing

asset turnover. In addition, increasing leverage levels seemed to be important in

earlier years, whereas trends in liquidity and net profit margin seem to be irrelevant when

explaining movements in announcement return regardless of the time frame.
Publisher
OsloMet - Oslo Metropolitan University

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