The Influence of Probability of Target Company's Acquisition on M&A performance

The aim of this research is to investigate the impact of the takeover likelihood for target companies on the abnormal returns from M&A deals and in this way shed a new light on the event study analysis in M&A scientific field. The most significant predictors for M&A deals appeared to be price to book ratio, fixed assets to total assets ratio, ROA and company’s size. The influence of these variables describe potential targets as companies with more valuable tangible assets on the balance sheet and as companies, which underperform on the market in terms of return on invested capital. Derived probability from the logit model appeared to have negative statistically significant impact on target’s abnormal returns in US, which proves the main hypothesis of the research: the premium for benefits from possible probability of merger is already embedded in the current market price of stock, which makes announcement premium on a deal smaller and therefore makes M&A performance in terms of observable premium less attractive for target company’s shareholders.