From 2001 to 2003, the insurance industry in the United States experienced a moving ridge of amalgamations and acquisitions ( M & A ; As ) . This paper surveies the impacts of M & A ; As on acquirers in the insurance industry in the United States during the period of 2001-2003 by analysing the unnatural returns ( ARs ) and cumulative unnatural returns ( CARs ) of geting houses around the proclamation of acquisitions. The aim of this paper is to find whether M & A ; As in the insurance industry in the United States create value for stockholders by analyzing the stock monetary value impact of M & A ; A minutess on geting houses.
The analysis indicates that, in general, M & A ; As in the insurance industry in the United States created positive cumulative unnatural returns ( CARs ) for geting houses in the short tally. However, in the long tally, M & A ; As created negative CARs for acquirers.
The insurance industry in the United States experienced a moving ridge of amalgamations and acquisitions ( M & A ; As ) from 2001 to 2003. On one manus, the moving ridge of M & A ; As in the insurance industry was driven by altering engineerings, peculiarly by progresss in calculating and communications, that changed the optimum graduated table of engineering development undertakings. On the other manus, the M & A ; As in the insurance industry were besides driven by altering hazard degrees in the industry, peculiarly the addition in ruinous hazard and the hazard of liability cases. Furthermore, acquirers want to increase their capital base, achieve economic systems of graduated table, unafraid distribution channels, trade with merchandise complexness, spread their geographical range and, particularly with smaller companies, trade with freshly imposed ordinances.
The intent of this paper is to analyze how amalgamations and acquisitions have an influence on the geting houses by analysing the unnatural returns ( ARs ) and cumulative unnatural returns ( CARs ) of geting houses around the proclamation of acquisitions.
We conduct an event-study analysis to find the market value effects of the 17 M & A ; A minutess included in our sample. We obtain stock monetary value informations from the Blackboard and analyze the market reaction to the M & A ; A minutess of geting houses in a series of event Windowss environing the dealing day of the months. As argued by Schwert ( 1981 ) , the usage of market value informations is more powerful than other attacks in analyzing the effects of events such amalgamations and acquisitions because market monetary values instantly reflect the market ‘s appraisal of new information on the mark and geting houses. In consequence, carry oning an event survey enables us to capture the market ‘s outlook of the net consequence of an M & A ; A dealing on the present value of the expected hereafter hard currency flows of the houses involved in the dealing and therefore to find whether M & A ; As tend to make value for stockholders. Although there are clearly other effects of M & A ; As, such as the impact on monetary values, service quality, and merchandise offerings to clients, analyzing the stock monetary value consequence of the minutess provides one of import metric of the grade of value-creation or devastation ensuing from amalgamation tendencies in the United States.
Analyzing the market-value effects of European insurance amalgamations is of import for a figure of grounds. Analyzing M & A ; As in the insurance industry of the United States has of import deductions for directors of fiscal services houses. If amalgamations tend to be value-enhancing, so it may be worthwhile for directors to give scarce clip and resources to foster M & A ; A activities. If, on the other manus, amalgamation s have small or no impact on value or perchance destroy value, so managerial attempts might be more productively directed towards other activities such as bettering efficiency and productiveness. Besides, information on whether some types of minutess are more likely to make value than others should assist directors in explicating M & A ; A schemes.
The balance of the paper is organized as follows. In subdivision 3 we discuss motivations for coup d’etats and stipulate hypotheses. In subdivision 4 we explain our sample choice process and event survey methodological analysis. In subdivision 5 we conduct result analysis. In subdivision 7 we make a decision of this paper.
Amalgamations and Acquisitions: Hypothesiss
Amalgamations can be slightly hard to apologize in footings of the fiscal theory. Harmonizing to fiscal theory the value of any plus is equa cubic decimeter to the present value of its hard currency flows. Therefore, a publically held house can be considered as a package of hard currency flows expected to be received in the hereafter. Investors are assumed to keep loosely diversified portfolios including value-weighted portions of all houses in the economic system ( the “ market portfolio ” ) . In this concept, M & A ; As do non needfully add value because they simply combine the rights to hard currency flow s that are already held by diversified investors. Hence, investors should be apathetic between having future hard currency flow watercourses from two separate houses instead than from one merged house formed by uniting the two separate houses. To the extent that M & A ; As are dearly-won, investors may really be worse off following an M & A ; A dealing.