Short term effects of mergers and acquisitions in the Icelandic market

Abstract

This paper investigates the short term stock price reaction in the Icelandic market to announcements of mergers and acquisitions from 1996 to 2005. Research from Europe and the U.S. shows that the short term effects from mergers and acquisitions on the value of the acquiring firm are generally small or even negative. The exception seems to be a modest increase in the share price of the acquiring firm when smaller firms are involved. This research shows that the stock value for Icelandic firms increases by nearly 7% when the size of the target firm is a significant share of the size of the acquiring firm, but remains unchanged when the target firm is relatively small compared to the acquirer.