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ANNOUNCEMENT OF THE EXCHANGE RATIO OF THE MERGING COMPANIES - IMPACT ON THE ACQUIRING FIRMS

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Author(s): Leszek CZERWONKA

Journal: Scientific Annals of the Alexandru Ioan Cuza University of Iasi : Economic Sciences Series
ISSN 0379-7864

Volume: 2011;
Issue: LVIII;
Start page: 83;
Date: 2011;
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Keywords: merger | acquisition | exchange ratio | asset pricing | event study

ABSTRACT
In merger transactions the value of the share exchange ratio is essential, because it affects the distribution of the benefits of the merger. The aim of this study is to analyze the impact of announcements of the agreed by boards share exchange ratios on the valuation of shares of companies involved in the merger as acquiring companies. The method used for measuring the impact of exchange ratio announcement on the share prices is the event study, in which the abnormal rates of return were counted, showing the extent to which the actual rates of return on shares of the merging companies are different from the expected rates of return that would occur if there was no any extraordinary event, such as announcement of the merger plan. Previous studies indicate that the acquiring companies on average did not gain in mergers.
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