Comparative Analysis of the Effectiveness of Divestments and M&A Deals: Evidence from Metallurgical Industry

Analysis of the effectiveness of divestments and mergers and acquisitions in the developed capital markets has always caused particular interest in the scientific literature. In this paper, we conducted study to compare the reaction of the stock market on the announcement of divestment transactions and M&A in emerging markets of the BRICS group. At the same time the effects were analyzed separately for the two forms of divestment transactions – spin-off and sell-off. The study was focused on metallurgical industry, as this sector plays a key role in the economic development of the selected region. In addition, the transactions initiated by the metallurgical companies are among the most common in the BRICS countries. In total, the sample included 267 transactions for the period 2004-2015. Performing event analysis resulted in important research findings and allowed us to make appropriate conclusions about the effectiveness of different types of transactions. Firstly, a positive market reaction to the announcement of the divestment transactions was revealed. The maximum value (4.51%) cumulative excess return reaches to the 11-day window around the event at the 5% significance level (t-statistic 2.38). Second, the market is also upbeat news about upcoming mergers and acquisitions. In all considered observation windows accumulated excess return takes a positive value. In addition, the comparison of results for the two samples mentioned above showed that M&A announcements accompanied by lower value of CAR. It should also be noted that both forms of divestment lead to the creation of value and are characterized by a positive cumulative abnormal returns in all observation windows. However, the announcement of the spin-off transaction, as in the previous studies examined, is valued by the market much higher.