Is the Event Study Methodology Useful for Merger Analysis: A Comparison of Stock Market and Accounting Data

This paper presents empirical evidence about the ability of event studies to capture mergers ex-post
profitability as measured by accounting data. We use a sample of large horizontal concentrations during
the period 1990-2002 involving 482 firms either as merging firms or competitors, and contrast a measure
of the mergers profitability based on stock market event studies with one based on balance sheet profit
data. We show that using a long window around the announcement date (25 or 50 days before the event)
increases the ability to capture the ex-post merger effect: the pairwise correlation coefficient is positive
and highly significant.