Value Creation of Mergers and Acquisitions in IT industry before and during the Financial Crisis

Most prior researches suggest that average change in market value of acquiring firms varies closely around zero on average and many acquirers experience negative returns. Extending previous studies on mergers and acquisitions, this study focuses on value creation of the mergers and acquisitions of Tech 100 companies in the US before and during the recent financial crisis. Results of the event study show that all mergers and acquisitions in leading IT companies in the US have no significant cumulative abnormal return before the financial crisis (between 2004 and 2006), which is in consistent with previous literature. However, during the financial crisis (between 2007 and 2009), acquirers that pursued an unrelated/low related diversification strategy received significant cumulative abnormal return, while acquirers that pursued a highly related synergy strategy received no significant return. In addition, the results also show that among the three major sections of IT industry (hardware, software and services), companies in both hardware and services sectors have a significant cumulative abnormal return while software companies have no significant cumulative abnormal return during the financial crisis.