TY - JOUR
T1 - The danger of misinterpreting short-window event study findings in strategic management research
T2 - An empirical illustration using horizontal acquisitions
AU - Oler, Derek K.
AU - Harrison, Jeffrey S.
AU - Allen, Mathew R.
N1 - Copyright:
Copyright 2008 Elsevier B.V., All rights reserved.
PY - 2008/5
Y1 - 2008/5
N2 - Short-window event studies are popular in the strategic management literature. These studies assume that the market's initial reaction to strategic events reflects their economic impact in an unbiased manner. This assumption may hold in some cases, but when an event has complex ramifications that are difficult to predict, the initial market response may be biased and/or incomplete. Acquisitions are complex events, suggesting that results from short-window event studies of acquisitions may foster incorrect inferences. Using a sample of horizontal acquisitions, this article shows that the positive initial market response to an acquisition announcement is contradicted by negative long-run post-acquisition returns, suggesting that the initial response is incorrect and that the error is rectified later. Our findings imply that short-window event studies may not accurately capture the economic impact of complex strategic actions, for the interpretation and use of event studies.
AB - Short-window event studies are popular in the strategic management literature. These studies assume that the market's initial reaction to strategic events reflects their economic impact in an unbiased manner. This assumption may hold in some cases, but when an event has complex ramifications that are difficult to predict, the initial market response may be biased and/or incomplete. Acquisitions are complex events, suggesting that results from short-window event studies of acquisitions may foster incorrect inferences. Using a sample of horizontal acquisitions, this article shows that the positive initial market response to an acquisition announcement is contradicted by negative long-run post-acquisition returns, suggesting that the initial response is incorrect and that the error is rectified later. Our findings imply that short-window event studies may not accurately capture the economic impact of complex strategic actions, for the interpretation and use of event studies.
KW - Acquisitions
KW - Event studies
KW - Market efficiency
KW - Mergers
UR - http://www.scopus.com/inward/record.url?scp=46649094585&partnerID=8YFLogxK
U2 - 10.1177/1476127008090008
DO - 10.1177/1476127008090008
M3 - Article
AN - SCOPUS:46649094585
VL - 6
SP - 151
EP - 184
JO - Strategic Organization
JF - Strategic Organization
SN - 1476-1270
IS - 2
ER -