The Perks of Market Timing in Mergers and Acquisitions

Gimede Gigante (), Beatrice Gobbo () and Andrea Cerri ()
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Gimede Gigante: Bocconi University

Chapter 7 in Trends, Issues, and Challenges in Banking and Finance, 2025, pp 149-170 from Palgrave Macmillan

Abstract: Abstract European mergers and acquisitions (M&A) market has been subject to a series of merger waves from the 1980s. According to the behavioral school, merger waves occur because during hot stock market periods companies exploit their overvalued price to enter M&A transactions. This chapter tries to assess the benefit of market timing in the M&A market. Specifically, the analysis will be devoted to the short- and long-run returns for bidding companies that decided to time the market and others who chose not to exploit their stock overvaluation. Results show that companies timing the market and using their overvalued equity as a payment method generate higher returns than those companies that do not. The results are consistent in both the short and the long run. On the contrary, companies using cash as the method of payment of the transaction generate positive returns in the short run but suffer long-run losses. Cash acquiring companies show a long-run reversal in the bidder’s stock price. The results provided in this chapter are in line with the market timing theory. European stock acquiring companies should time the market when their stock is overvalued because they benefit from long-run returns. The same is not true for cash acquiring companies. They are worse off because they pay with cash during a hot stock market period.

Keywords: Market-timing; M&A; stock markets; cash (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/978-3-031-96066-6_7

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