Generalizing Event Studies Using Synthetic Controls : An Application to the Dollar Tree–Family Dollar Acquisition

Event studies, which have significantly advanced mergers and acquisitions (M&As) research, obtain an abnormal outcome based on a theoretical market model linking a firm’s shareholder returns to those of the market. For outcomes lacking a theoretical model, we propose an empirical approach using a synthetic control method with machine learning to link outcomes for the acquirer or target to those for a group of comparison firms. We illustrate this approach on Dollar Tree’s acquisition of Family Dollar, by analyzing shareholder returns, realized synergies (costs and sales), and customer sentiment (derived from more than 52 million Twitter messages). We highlight this method’s potential—both for M&A and other areas of strategy research—to open up new lines of enquiry