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

M&A deals include companies that are in financial stress or lack capabilities to stay

on the market, and as a result decide to merge with companies in the same situation to

create synergies.

4. Literature Review

Whether M&A create economic value are key questions in strategy research

(Haspeslagh and Jemison 1991, Hitt et al. 2001). Various researchers in different

periods have analyzed the behavior of stock returns in mergers and acquisitions.

Event studies have a long history, including the original examination of price

effects of stock split by Dolley (1933) and Fama et. al (1969). Event study examines

the performance of companies‘ stock during certain corporate events such as M&A

deal announcements, dividend announcements, bonus issue, executive succession,

earning announcements, diversification and etc. In other words, researchers employ

event studies to evaluate how fast stock prices act in response to macroeconomic or

business news.

Empirical results in previous literature have exhibited well correlation between

stock market reaction to deal announcement and consequent performance of

acquisitions. In most studies abnormal returns around announcement date indicates

if transaction succeeded to create value for both: the target and bidder or not.

Despite Malkiel (2003) challenging the market-based measure of performance,

Singh and Montgomery (1987) confirmed that abnormal returns are reliable measure

of acquisition or merger performance in finance. Studies of Kaplan and Weisbach

(1992) confirms that abnormal returns are good predictors of transaction‘s impact

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