Merger and Acquisition Performance Event Study

Targets are typically bought at a substantial premium over their pre-bid price, so their shareholders capture most of the anticipated gains, producing large positive target CARs. Acquirers, by contrast, often pay away much of the expected synergy in that premium and may face investor skepticism about the deal's logic or the risk of overpayment, leaving their announcement returns around zero or slightly negative. Andrade, Mitchell and Stafford document exactly this pattern: combined acquirer-plus-target value rises modestly, but the acquirer's own shareholders rarely gain on average.

There is a tension. A short window (such as minus one to plus one trading days) keeps the measured reaction tightly focused on the announcement and minimizes contamination from unrelated news, which is why Andrade, Mitchell and Stafford favor short windows for clean inference. But if information leaks before the formal announcement, too narrow a window misses the pre-announcement run-up. The standard compromise is a short symmetric window around day zero, sometimes widened slightly to capture leakage, with the estimation window kept well clear of the event so the normal-return benchmark stays uncontaminated.

Not necessarily. An event study measures the market's expectation of value creation at announcement, not the realized outcome. Expected synergies may fail to materialize, integration may falter, and long-run accounting performance can diverge from the initial reaction. King, Dalton, Daily and Covin's meta-analysis found that acquirers do not, on average, improve their post-acquisition performance and that standard moderators explain little of the variation, underscoring that announcement CARs are a forward-looking forecast that must be complemented by long-run performance evidence.