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Critical Finance Review > Vol 11 > Issue 1

On Long-Run Stock Returns After Corporate Events

James W. Kolari, Department of Finance, Texas A&M University, USA, j-kolari@tamu.edu , Seppo Pynnonen, Department of Mathematics and Statistics, University of Vaasa, Finland, sjp@uwasa.fi , Ahmet M. Tuncez, University of Michigan at Dearborn, USA, atuncez@umich.edu
 
Suggested Citation
James W. Kolari, Seppo Pynnonen and Ahmet M. Tuncez (2022), "On Long-Run Stock Returns After Corporate Events", Critical Finance Review: Vol. 11: No. 1, pp 117-167. http://dx.doi.org/10.1561/104.00000049

Publication Date: 21 Feb 2022
© 2022 James W. Kolari, Seppo Pynnonen and Ahmet M. Tuncez
 
Subjects
 
Keywords
C10G14G32G34G35
Abnormal returnLong-run event studyCharacteristic normalizationMerger and acquisitionIPOSEODividend initiation
 

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In this article:
1. Introduction 
2. Characteristic Normalization 
3. Data and Methodology 
4. Empirical Results 
5. Conclusion 
Appendix 
References 

Abstract

Bessembinder and Zhang (2013) show that long-run abnormal returns after major corporate events detected by the buy-and-hold abnormal return method using size and book-to-market matched control stocks can be explained by differences between event and control stocks’ unsystematic and systematic characteristics. We find that their results are mainly driven by the normalization of firm characteristics, which was intended to make estimated regression coefficients comparable. Unfortunately, their normalization procedure implies incremental non-linearity and randomizes regression relations. These effects influence the slope coefficients, potentially bias alpha, and materially inflate its standard error, which causes even economically large alpha estimates to be insignificant. Revisiting their regression analyses shows that, even though the event firms and their controls differ in terms of various characteristics, these differences do not generally eliminate abnormal returns as measured by alphas.

DOI:10.1561/104.00000049