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The Stock Market Reaction to Mergers and Acquisitions: Evidence from the Banking Industry

Abstract This paper focuses on the effect of mergers and acquisitions (M&As) announcements on the stocks of Latin American banks and their rivals between 2000 and 2019. We evaluate two impacts of M&A announcements: impacts on cumulative abnormal returns (CAR) and impacts on event-induced variance (EIV). We use the GARCH-based event-study method, finding that acquirers and target banks have a statistically significant CAR and that their rivals and targets are not affected by M&A announcements. We observe that EIV is negative for acquirers, targets, and rivals. Finally, in a robustness exercise, we estimate a multivariate GARCH model, finding that the results remain qualitatively equal.