The Stock Market Reaction to Merger and Acquisition Announcements in Liner Shipping

The importance of mergers and acquisitions as strategies pursued towards the achievement of the organisational objectives of contemporary ocean liner carriers is evidenced by the increasing number of such activities in recent years. Despite the topicality of the issues and their practical significance, there has not been a systematic investigation of the effects that the announcement of such events might have on the stock price of the companies involved. The aim of this paper is to empirically investigate the reaction of the stock market to the announcement by listed liner shipping companies of a planned merger or acquisition. This research aim is achieved through the application of the standard market model in an event study. The methodology is well established in finance studies, but has not been applied to the shipping industry. The results obtained from a number of analytical tests provide support to the hypothesis that the announcement of a merger or acquisition has significant impact on the stock price behaviour of the liner companies involved. Managerial and research implications resulting from the study are also presented. © 2002, Palgrave Macmillan Ltd.