The Effect of Mergers and Acquisitions Announcements on Acquirers and Targets Corporate Bond Returns

This paper examines the effects of mergers and acquisitions announcements on the acquirers and the targets corporate bond returns with evidence from the US market after the year 2000. The major finding is that acquirer bonds as a whole exhibited significant negative excess returns, while target bonds exhibited significant positive excess returns. Notably, acquirer bonds experienced excess loss when they are rated investment grade, when the firm asset risk increases, when the maturity is longer than that of targets, and when the targets are small. On the other hand, target bonds fared better when they are below investment grade, when the leverage decreases, and when they have shorter maturity. Both nonparametric analysis and multivariate regression analysis are adopted. The major contribution of this paper is that bond return before 2009 are higher than those after and that transaction premiums benefit target bonds but cause significant losses to acquirers.