Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data

This paper presents empirical evidence about the ability of event studies to capture future mergers' profitability measured by accounting data. We use a sample of large horizontal concentrations during the period 1990-2002 involving 459 firms either as merging firms or competitors, and contrast a measure of the mergers' profitability based on event studies with one based on balance sheet profit data. We show that using a long window around the announcement date (25 or 50 days before the event) increases the ability of capturing the ex-post merger effect: the pair wise correlation coefficient is positive and highly significant