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Financial Return Risk and the Effect on Shareholder Wealth

How M&A Announcements and Banking Crisis Events Affect Stock Mean Returns and Stock Return Risk- A Compendium of Five Empirical Studies across Selective Industries

Series:

Malte Raudszus

This dissertation comprises five studies analyzing daily stock returns of listed firms. Studies one and two shed light on corporate diversification through M&A and how related risk dynamics affect shareholder wealth. Carrying over the risk analysis methodology ‘GARCH’ to external events in studies three and four, the author individually scrutinizes the adverse implications of bank failures and bailouts in the 2007-2009 financial crisis. Finding opposing return shocks, he identifies the limits of the ‘symmetric’ GARCH. As observed of the behavior of stock return data, volatility reacts asymmetrically to positive and negative return shocks. The advanced EGARCH incorporates this so called ‘leverage effect’. Applying the EGARCH in his final study, the author can simultaneously scrutinize the adverse bank events with an appropriate econometric foundation.

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Preface .................................................................................................................. V Acknowledgements ........................................................................................... VII Content Overview................................................................................................ XI Table of Contents ............................................................................................. XIII List of Tables ................................................................................................... XVII List of Figures ................................................................................................... XX List of Abbreviations ........................................................................................ XXI List of Symbols ............................................................................................. XXIV 1. Introduction ............................................................................................. 1 2. Does Vertical Diversification Create Superior Value? Evidence from the Construction Industry ............................................ 7 2.1. Introduction ............................................................................................... 7 2.2. Literature Review .................................................................................... 10 2.2.1. M&A Motives across Transaction Directions ........................................ 10 2.2.2. Consolidation of the Construction Industry ............................................ 12 2.2.3. Hypotheses for Risk and Return Behavior.............................................. 13 2.3. Data and Methodology ............................................................................ 15 2.3.1. Data Selection ......................................................................................... 15 2.3.2. Methodology ........................................................................................... 16 2.4. Results ..................................................................................................... 20 2.4.1. Structure of the Results’ Section ............................................................. 20 2.4.2. Short-term Risk and Return Behavior ..................................................... 20 2.4.3. Long-term Risk Behavior ........................................................................ 25 2.4.4. Multivariate Regressions on Risk Behavior ........................................... 27 2.5. Conclusion ............................................................................................... 30 XIV Table of Contents 3. How Consolidation Changes the Risk Profile of a Whole Sector: Evidence from the Brewing Industry .................................................. 33 3.1. Introduction ............................................................................................. 33 3.2. Literature Review .................................................................................... 35 3.2.1. Evidence on Risk Changes and Wealth Effects around M&A ............... 35 3.2.2. Contribution to the Literature and Hypotheses ....................................... 38 3.3. Data and Methodology ............................................................................ 40 3.3.1. Data Selection ......................................................................................... 40 3.3.2. Methodology of the Systematic Risk Analysis ....................................... 41 3.4. Results of Risk Analysis around M&A .................................................. 44 3.4.1. Acquirer Short-term Systematic Risk Changes ...................................... 44 3.4.2. Rival Short-term Systematic Risk Changes ............................................ 47 3.4.3. Summary of Acquirer and Rival Risk Changes ...................................... 49 3.4.4. Determinants of Abnormal Risk Changes .............................................. 50 3.5. Conclusion ............................................................................................... 54 4. Bank Failures and Real Estate Investment Trust (REIT) Returns ................................................................................................... 57 4.1. Introduction ............................................................................................. 57 4.2. Literature Review .................................................................................... 59 4.2.1. Market Liquidity, Bank Failures, and REIT Behavior...

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