Chapter 13: Mergers and Acquisitions in the Shipping Industry: The Effect on Corporate Value
Osvaldo Rodrigues de Araujo Rios and Heather Leggate McLaughlin 1 Introduction The shipping industry has experienced significant growth in merger and acquisition activity over recent years. The impact of such events on corporate value has not thus far been the subject of extensive research. In the finance literature, it is well documented that mergers can create abnormal returns in the stock markets, particularly in the short term. This chapter documents an investigation into this phenomenon for shipping mergers, on both an industry-wide and a sectoral basis to determine whether there are differences in the way in which share prices respond to such activity. The approach uses share prices as the primary indicator of future cash flow expectations. Assuming that the financial market efficiently reflects these expected future cash flows, positive (negative) expectations will result in higher (lower) than normal returns. Those abnormal returns are thought to reflect the impact of the potential merger on the company value. This methodology has been widely adopted in this type of financial research, in which a market model establishes a benchmark from which to measure abnormal returns around an event window. In this way, it is possible to consider the effect on corporate value of both the target and bidding company around the announcement date. The chapter first explores the existing research, before discussing the data sampling issues. The methodology then draws on established practice in the finance area. Finally, there is an analysis of results and their implications for the shipping industry. 2...
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