Review of Quantitative Finance and Accounting

, Volume 34, Issue 3, pp 327–349

Hot and cold merger markets


  • N. K. Chidambaran
    • Department of Finance & Business EconomicsFordham University
    • Department of FinanceNew York University
  • Zhaoyun Shangguan
    • Department of Accounting and Finance, School of BusinessRobert Morris University
  • Gopala Vasudevan
    • Department of Accounting and Finance, Charlton College of BusinessUniversity of Massachusetts
Original Research

DOI: 10.1007/s11156-009-0133-z

Cite this article as:
Chidambaran, N.K., John, K., Shangguan, Z. et al. Rev Quant Finan Acc (2010) 34: 327. doi:10.1007/s11156-009-0133-z


We study mergers and acquisition during the period from 1988 to 2005 and examine the impact of merger market intensity, i.e., merger waves, on the means of payment and the returns to target and acquirer shareholders. We use two proxies to measure the intensity of the merger market—the number of mergers in the trailing 12-month period prior to a merger and the total dollar volume of mergers in the trailing 12-month period prior to a merger—and use these measures to define hot and cold merger markets. We find that stock financing is more common after a stock price run-up for the acquiring firm and in hot merger markets. We also find that the acquisition premium is larger in hot merger markets. Returns to acquiring company shareholders are lower for stock financed mergers and are lower when merger markets are intense. Our results are consistent with the predictions of the behavioral theory for merger waves.


Hot and cold merger marketsMerger qualityAcquisition premiumsAnnouncement-period returnsBehavioral theory of mergers

JEL Classification


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© Springer Science+Business Media, LLC 2009