The authors intend to discover whether the recent increased M&A activity in the European banking sector was indeed profitable for the banks. For this purpose, the authors apply the event study methodology, which is based on observing the abnormal returns to shareholders around the day of an M&A deal announcement.
The event study results represent the shareholders' expectations regarding the value creation (or destruction). The authors formulate six working hypotheses concerning the value effects of M&A announcement based on results of the existing event studies.
First of all, the researchers test the overall average wealth effect of M&A announcement. The value effects are analyzed separately for shareholders of targets, bidders, and (theoretically) combined entities.