On Long-Run Stock Returns After Corporate Events

James W. Kolari, Seppo Pynnonen and Ahmet M. Tuncez

Critical Finance Review, 2022, vol. 11, issue 1, 117-167

Abstract: Bessembinder and Zhang (2013) show that long-run abnormal returns after major corporate events detected by the buy-and-hold abnormal return method using size and book-to-market matched control stocks can be explained by differences between event and control stocks’ unsystematic and systematic characteristics. We find that their results are mainly driven by the normalization of firm characteristics, which was intended to make estimated regression coefficients comparable. Unfortunately, their normalization procedure implies incremental non-linearity and randomizes regression relations. These effects influence the slope coefficients, potentially bias alpha, and materially inflate its standard error, which causes even economically large alpha estimates to be insignificant. Revisiting their regression analyses shows that, even though the event firms and their controls differ in terms of various characteristics, these differences do not generally eliminate abnormal returns as measured by alphas.

Keywords: Abnormal return; Long-run event study; Characteristic normalization; Merger and acquisition; IPO; SEO; Dividend initiation (search for similar items in EconPapers)
JEL-codes: C10 G14 G32 G34 G35 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000049

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