Page 62 - Azerbaijan State University of Economics

N.V. Abdullayeva: Value creation through mergers and acquisitions in energy sector

imply that companies should constantly grow organically or inorganically.

Sometimes, in cases when it is not feasible strategy for a given company to grow

organically, they decide to engage in M&A.

For decades, researchers, investors and managers were interested whether M&A

transactions create or destroy values for participating companies. If prior studies

were focused mostly on theoretical concerns of M&A, after 1960s researchers

started to employ event study and other financial and accounting techniques to

analyze the financial impact of the deal on participating companies. Although more

than a dozen of studies were conducted, there is no consensus on the impact of the

deals on target and bidding companies.

The aim of this article is to analyze the effects of M&A announcement on wealth

creation or value added to the shareholders of the companies in energy sector. First it

presents the theoretical framework of M&A, motives behind engaging in activity,

findings in previous research and literature. To verify the presence if abnormal returns,

event study methodology is used to examine selected companies in energy sector,

particularly in oil and gas industry engaged in M&A activity from 200 to 2014. Dodd

(1980), Firth (1980), Kuipers, Miller, Patel (2003) as well as Mulherin, Boone (2000)

find statistically significant negative abnormal returns. However, Eckbo (1983), Asquith

(1983) and others show positive but significant returns in pre and post-merger period.

First, the sample of 100 M&A transactions in oil and gas sector between 2000 and

2014 were selected. Several market indexes were chosen to check existence of abnormal

returns for companies engaged in the deal. Using event study and employing market

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