Signaling the Characteristics of Business Combinations and Abnormal Stock Returns
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Abstract
Objective: to examine the effect of signaling the characteristics of business combinations through material facts on the abnormal returns of companies listed on the Brazilian stock exchange. Methods: the study’s final sample comprises 675 observations from 2010 to 2021, collected from the Refinitiv database and the Securities and Exchange Commission website. To analyze the impact on abnormal returns, calculated using the market model and the asset pricing model, the event study methodology was applied with an 11-day event window. Results: the characteristics of business combinations are significant for the Brazilian stock market, resulting in positive abnormal returns. However, no distinctions were observed regarding the type of combination, payment method, or whether a subsidiary conducted the transaction. Notably, when goodwill is signaled, abnormal returns are positive and higher than those without disclosure. Conclusions: The characteristics of business combinations are relevant to the Brazilian stock market, with the information signaled to investors being more impactful than the type of information disclosed. This research highlights the importance of signaling business combination characteristics for managers and informs external users when speculating on such transactions.
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Pacheco, J., & Rover, S. (2025). Signaling the Characteristics of Business Combinations and Abnormal Stock Returns. Brazilian Administration Review, 22(4), e250047. https://doi.org/10.1590/1807-7692bar2025250047
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Research Articles
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Bouzgarrou, H., & Louhichii, W. (2014). Does the financing decision help to understand market reaction around mergers and acquisitions?. Journal of Applied Business Research, 30(2), 465-478. https://doi.org/10.19030/jabr.v30i2.8418
Brealey, R. A., Myers, S. C., & Allen, F. (2018). Fusões, controle corporativo e governança. Princípios de Finanças Corporativas. (12 ed, parte 10, pp.771-773, Trad Ronald Saraiva de Menezes). AMGH Editora Ltda.
Chatterjee, S. (1986). Types of synergy and economic value: The impact of acquisitions on merging and rival firms. Strategic Management Journal, 7(2), 119-139. https://doi.org/10.1002/smj.4250070203
Chuang, K. S. (2018) Glamour versus value, market timing and firm performance: Evidence from mergers and acquisitions. Review of Quantitative Finance and Accounting, 51, 967-1003. https://doi.org/10.1007/s11156-017-0694-1
Clougherty, J. A., & Duso, T. (2011). Using rival effects to identify synergies and improve merger typologies. Strategic Organization, 9(4),310-335. https://doi.org/10.1177/1476127011421536
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of management, 37(1), 39-67. https://doi.org/10.1177/0149206310388419
d'Arcy, A., & Tarca, A. (2018). Reviewing IFRS goodwill accounting research: Implementation effects and cross-country differences. The International Journal of Accounting, 53(3), 203 226. https://doi.org/10.1016/j.intacc.2018.07.004
Donnelly, R., & Hajbaba, A. (2014). The acquisition puzzle and mispricing: Evidence of over-optimism. International Journal of Managerial Finance, 10(4), 470-493. https://doi.org/10.1108/IJMF-01-2012-0001
Dranev, Y., Frolova, K., & Ochirova, E. (2019). The impact of fintech M&A on stock returns. Research in International Business and Finance, 48, 353-364. https://doi.org/10.1016/j.ribaf.2019.01.012
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417. https://doi.org/10.2307/2325486
Fraunhoffer, R., & Schiereck, D. (2012). Consolidation and communication in European energy markets. International Journal of Energy Sector Management, 6(4), 534-557. https://doi.org/10.1108/17506221211282028
Fuller, K., Netter, J., & Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. The Journal of Finance, 57(4), 1763-1793. https://doi.org/10.1111/1540-6261.00477
Goddard, J., Molyneux, P. & Zhou, T. (2012). Bank mergers and acquisitions in emerging markets: Evidence from Asia and Latin America. The European Journal of Finance, 18(5), 419-438. https://doi.org/10.1080/1351847X.2011.601668
Hirschey, M., & Richardson, V. J. (2002). Information content of accounting goodwill numbers. Journal of Accounting and Public Policy, 21(3), 173-191. https://doi.org/10.1016/S0278-4254(02)00048-0
Jaffe, J., Jindra, J., Pedersen, D., & Voetmann, T. (2015). Returns to acquirers of public and subsidiary targets. Journal Corporate Finance, 31, 246-270. https://doi.org/10.1016/j.jcorpfin.2015.02.005
Kode, G. V. M., Ford, J. C., & Sutherland, M. M. (2003). A conceptual model for evaluation of synergies in mergers and acquisitions: A critical review of the literature. South African Journal of Business Management, 34(1), 27-38. https://doi.org/10.4102/sajbm.v34i1.675
Krieck, P. A., & Kayo, E. K. (2013). Teoria da Agência e Governança Corporativa: Um estudo de evento em fusões e aquisições de 2000 a 2012. Revista de Finanças Aplicadas, 1,1-17. http://financasaplicadas.fia.com.br/index.php/financasaplicadas/article/view/182
Léger, P. M., & Quach, L. (2009). Post-merger performance in the software industry: The impact of characteristics of the software product portfolio. Technovation, 29(10), 704-713. https://doi.org/10.1016/j.technovation.2009.05.016
Lubatkin, M. (1983). Mergers and the performance of the acquiring firm. Academy of Management Review, 8(2), 218-225. https://doi.org/10.5465/amr.1983.4284724
Lubatkin, M., & O’Neill, H. (1988). Merger strategies, economic cycles, and stockholder value. Interfaces, 18(6), 65-71. https://doi.org/10.1287/inte.18.6.65
Lusyana, D., & Sherif, M. (2016). Do mergers create value for high-tech firms? The hounds of dotcom bubble. The Journal of High Technology Management Research, 27(2), 196-213. https://doi.org/10.1016/j.hitech.2016.10.009
MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13-39. https://www.jstor.org/stable/2729691
Maljojoki, M. (2024). Assessing the performance of M&A strategies in Finnish listed companies [Master’s Thesis]. Lappeenranta–Lahti University of Technology LUT, Lappeenranta, Finlândia.
Malmendier, U., Moretti, E., & Peters, F. S. (2018). Winning by losing: Evidence on the long-run effects of mergers. The Review of Financial Studies, 31(8), 3212-3264. https://doi.org/10.1093/rfs/hhy009
Meckl, R., & Röhrle, F. (2016). Do M&A deals create or destroy value? A meta-analysis. European Journal of Business and Economics, 11(2). https://doi.org/10.12955/ejbe.v11i2.890
Morris, R. D. (1987). Signalling, agency theory and accounting policy choice. Accounting and business Research, 18(69), 47-56. https://doi.org/10.1080/00014788.1987.9729347
Neethu, T. C., Viswanathan R., Arun T C, Parveen J. (2019). Behavioral perspective on investor’s reaction to mergers and acquisitions announcements. International Journal of Recent Technology and Engineering, 8(2S4), 334-336. https://doi.org/10.35940/ijrte.B1063.0782S419
Paugam, L., Astolfi, P., & Ramond, O. (2015). Accounting for business combinations: Do purchase price allocations matter?. Journal of Accounting and Public Policy, 34(4), 362-391. https://doi.org/10.1016/j.jaccpubpol.2015.04.003
Pechlivanidis, E., Ginoglou, D., & Barmpoutis, P. (2022). Debt crisis, age and value relevance of goodwill: evidence from Greece. International Journal of Accounting & Information Management, 30(2), 189-210. https://doi.org/10.1108/IJAIM-10-2021-0215
Pimenta, M. M., Marques, J. A. V. D. C., & Macedo, M. A. D. S. (2015). Retornos anormais versus criação de valor e sinergias operacionais de firmas brasileiras envolvidas em combinações de negócios. Pensar Contábil, 17(64) 30-38. http://atena.org.br/revista/ojs-2.2.3-06/index.php/pensarcontabil/article/view/2621/
Režňáková, M, & Pěta, J. (2018). The factors driving the synergy value in mergers of mechanical engineering companies in the Czech Republic. Journal of International Studies, 11(3), 239-254. https://doi.org/10.14254/2071-8330.2018/11-3/19
Roncagliolo, E., & Avallone, F. (2022). Recognition of provisional goodwill: Real need or communication strategy?. Journal of International Accounting, Auditing and Taxation, 49, 100510. https://doi.org/10.1016/j.intaccaudtax.2022.100510
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2002). Administração financeira. (2 ed, cap 30). Atlas.
Sarfati, G., & Shwartzbaum, A. (2013). Sinergias nas fusões e aquisições do setor de educação superior no Brasil. Revista Pensamento Contemporâneo em Administração, 7(4), 1-23. https://doi.org/10.12712/rpca.v7i4.11145
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355- 374. https://doi.org/10.2307/1882010
Stiglitz, J. E. (2000). The contributions of the economics of information to twentieth century economics. The quarterly journal of economics, 115(4), 1441-1478. https://doi.org/10.1162/003355300555015
Stiglitz, J. E. (2002). Information and the Change in the Paradigm in Economics. The American Economic Review, 92(3), 460-501. https://doi.org/10.1257/00028280260136363
Tanna, S., & Yousef, I. (2019). Mergers and acquisitions: Implications for acquirers’ market risk. Managerial Finance, 45(4), 545-562. https://doi.org/10.1108/MF-09-2018-0446
Technical Pronouncement CPC 15. (June 03, 2011). Combinação de negócios. https://static.cpc.aatb.com.br/Documentos/235_CPC_15_R1_rev2013.pdf
Truong, Y., Mazloomi, H., & Berrone, P. (2021). Understanding the impact of symbolic and substantive environmental actions on organizational reputation. Industrial Marketing Management, 92, 307-320. https://doi.org/10.1016/j.indmarman.2020.05.006
Woo, W.-S., Cho, S., Park, K.-H. & Byun, J. (2018). Excess offer premium and acquirers’ performance. Studies in Economics and Finance, 35(3), 407-425. https://doi.org/10.1108/SEF-06-2016-0135
Avdasheva, S., & Tsytsulina, D. (2015). The effects of M&As in highly concentrated domestic vis-à-vis export markets: By the example of Russian metal industries. Research in International Business and Finance, 34, 368-382. https://doi.org/10.1016/j.ribaf.2015.02.008
Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6(2), 159-178. https://doi.org/10.2307/2490232
Berkovitch, E., & Narayanan, M. P. (1993). Motives for takeovers: An empirical investigation. Journal of Financial and Quantitative analysis, 28(3), 347-362. https://doi.org/10.2307/2331418
Bouzgarrou, H., & Louhichii, W. (2014). Does the financing decision help to understand market reaction around mergers and acquisitions?. Journal of Applied Business Research, 30(2), 465-478. https://doi.org/10.19030/jabr.v30i2.8418
Brealey, R. A., Myers, S. C., & Allen, F. (2018). Fusões, controle corporativo e governança. Princípios de Finanças Corporativas. (12 ed, parte 10, pp.771-773, Trad Ronald Saraiva de Menezes). AMGH Editora Ltda.
Chatterjee, S. (1986). Types of synergy and economic value: The impact of acquisitions on merging and rival firms. Strategic Management Journal, 7(2), 119-139. https://doi.org/10.1002/smj.4250070203
Chuang, K. S. (2018) Glamour versus value, market timing and firm performance: Evidence from mergers and acquisitions. Review of Quantitative Finance and Accounting, 51, 967-1003. https://doi.org/10.1007/s11156-017-0694-1
Clougherty, J. A., & Duso, T. (2011). Using rival effects to identify synergies and improve merger typologies. Strategic Organization, 9(4),310-335. https://doi.org/10.1177/1476127011421536
Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of management, 37(1), 39-67. https://doi.org/10.1177/0149206310388419
d'Arcy, A., & Tarca, A. (2018). Reviewing IFRS goodwill accounting research: Implementation effects and cross-country differences. The International Journal of Accounting, 53(3), 203 226. https://doi.org/10.1016/j.intacc.2018.07.004
Donnelly, R., & Hajbaba, A. (2014). The acquisition puzzle and mispricing: Evidence of over-optimism. International Journal of Managerial Finance, 10(4), 470-493. https://doi.org/10.1108/IJMF-01-2012-0001
Dranev, Y., Frolova, K., & Ochirova, E. (2019). The impact of fintech M&A on stock returns. Research in International Business and Finance, 48, 353-364. https://doi.org/10.1016/j.ribaf.2019.01.012
Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417. https://doi.org/10.2307/2325486
Fraunhoffer, R., & Schiereck, D. (2012). Consolidation and communication in European energy markets. International Journal of Energy Sector Management, 6(4), 534-557. https://doi.org/10.1108/17506221211282028
Fuller, K., Netter, J., & Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. The Journal of Finance, 57(4), 1763-1793. https://doi.org/10.1111/1540-6261.00477
Goddard, J., Molyneux, P. & Zhou, T. (2012). Bank mergers and acquisitions in emerging markets: Evidence from Asia and Latin America. The European Journal of Finance, 18(5), 419-438. https://doi.org/10.1080/1351847X.2011.601668
Hirschey, M., & Richardson, V. J. (2002). Information content of accounting goodwill numbers. Journal of Accounting and Public Policy, 21(3), 173-191. https://doi.org/10.1016/S0278-4254(02)00048-0
Jaffe, J., Jindra, J., Pedersen, D., & Voetmann, T. (2015). Returns to acquirers of public and subsidiary targets. Journal Corporate Finance, 31, 246-270. https://doi.org/10.1016/j.jcorpfin.2015.02.005
Kode, G. V. M., Ford, J. C., & Sutherland, M. M. (2003). A conceptual model for evaluation of synergies in mergers and acquisitions: A critical review of the literature. South African Journal of Business Management, 34(1), 27-38. https://doi.org/10.4102/sajbm.v34i1.675
Krieck, P. A., & Kayo, E. K. (2013). Teoria da Agência e Governança Corporativa: Um estudo de evento em fusões e aquisições de 2000 a 2012. Revista de Finanças Aplicadas, 1,1-17. http://financasaplicadas.fia.com.br/index.php/financasaplicadas/article/view/182
Léger, P. M., & Quach, L. (2009). Post-merger performance in the software industry: The impact of characteristics of the software product portfolio. Technovation, 29(10), 704-713. https://doi.org/10.1016/j.technovation.2009.05.016
Lubatkin, M. (1983). Mergers and the performance of the acquiring firm. Academy of Management Review, 8(2), 218-225. https://doi.org/10.5465/amr.1983.4284724
Lubatkin, M., & O’Neill, H. (1988). Merger strategies, economic cycles, and stockholder value. Interfaces, 18(6), 65-71. https://doi.org/10.1287/inte.18.6.65
Lusyana, D., & Sherif, M. (2016). Do mergers create value for high-tech firms? The hounds of dotcom bubble. The Journal of High Technology Management Research, 27(2), 196-213. https://doi.org/10.1016/j.hitech.2016.10.009
MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of Economic Literature, 35(1), 13-39. https://www.jstor.org/stable/2729691
Maljojoki, M. (2024). Assessing the performance of M&A strategies in Finnish listed companies [Master’s Thesis]. Lappeenranta–Lahti University of Technology LUT, Lappeenranta, Finlândia.
Malmendier, U., Moretti, E., & Peters, F. S. (2018). Winning by losing: Evidence on the long-run effects of mergers. The Review of Financial Studies, 31(8), 3212-3264. https://doi.org/10.1093/rfs/hhy009
Meckl, R., & Röhrle, F. (2016). Do M&A deals create or destroy value? A meta-analysis. European Journal of Business and Economics, 11(2). https://doi.org/10.12955/ejbe.v11i2.890
Morris, R. D. (1987). Signalling, agency theory and accounting policy choice. Accounting and business Research, 18(69), 47-56. https://doi.org/10.1080/00014788.1987.9729347
Neethu, T. C., Viswanathan R., Arun T C, Parveen J. (2019). Behavioral perspective on investor’s reaction to mergers and acquisitions announcements. International Journal of Recent Technology and Engineering, 8(2S4), 334-336. https://doi.org/10.35940/ijrte.B1063.0782S419
Paugam, L., Astolfi, P., & Ramond, O. (2015). Accounting for business combinations: Do purchase price allocations matter?. Journal of Accounting and Public Policy, 34(4), 362-391. https://doi.org/10.1016/j.jaccpubpol.2015.04.003
Pechlivanidis, E., Ginoglou, D., & Barmpoutis, P. (2022). Debt crisis, age and value relevance of goodwill: evidence from Greece. International Journal of Accounting & Information Management, 30(2), 189-210. https://doi.org/10.1108/IJAIM-10-2021-0215
Pimenta, M. M., Marques, J. A. V. D. C., & Macedo, M. A. D. S. (2015). Retornos anormais versus criação de valor e sinergias operacionais de firmas brasileiras envolvidas em combinações de negócios. Pensar Contábil, 17(64) 30-38. http://atena.org.br/revista/ojs-2.2.3-06/index.php/pensarcontabil/article/view/2621/
Režňáková, M, & Pěta, J. (2018). The factors driving the synergy value in mergers of mechanical engineering companies in the Czech Republic. Journal of International Studies, 11(3), 239-254. https://doi.org/10.14254/2071-8330.2018/11-3/19
Roncagliolo, E., & Avallone, F. (2022). Recognition of provisional goodwill: Real need or communication strategy?. Journal of International Accounting, Auditing and Taxation, 49, 100510. https://doi.org/10.1016/j.intaccaudtax.2022.100510
Ross, S. A., Westerfield, R. W., & Jaffe, J. (2002). Administração financeira. (2 ed, cap 30). Atlas.
Sarfati, G., & Shwartzbaum, A. (2013). Sinergias nas fusões e aquisições do setor de educação superior no Brasil. Revista Pensamento Contemporâneo em Administração, 7(4), 1-23. https://doi.org/10.12712/rpca.v7i4.11145
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355- 374. https://doi.org/10.2307/1882010
Stiglitz, J. E. (2000). The contributions of the economics of information to twentieth century economics. The quarterly journal of economics, 115(4), 1441-1478. https://doi.org/10.1162/003355300555015
Stiglitz, J. E. (2002). Information and the Change in the Paradigm in Economics. The American Economic Review, 92(3), 460-501. https://doi.org/10.1257/00028280260136363
Tanna, S., & Yousef, I. (2019). Mergers and acquisitions: Implications for acquirers’ market risk. Managerial Finance, 45(4), 545-562. https://doi.org/10.1108/MF-09-2018-0446
Technical Pronouncement CPC 15. (June 03, 2011). Combinação de negócios. https://static.cpc.aatb.com.br/Documentos/235_CPC_15_R1_rev2013.pdf
Truong, Y., Mazloomi, H., & Berrone, P. (2021). Understanding the impact of symbolic and substantive environmental actions on organizational reputation. Industrial Marketing Management, 92, 307-320. https://doi.org/10.1016/j.indmarman.2020.05.006
Woo, W.-S., Cho, S., Park, K.-H. & Byun, J. (2018). Excess offer premium and acquirers’ performance. Studies in Economics and Finance, 35(3), 407-425. https://doi.org/10.1108/SEF-06-2016-0135