Risk management and its effect on mergers and acquisitions

This thesis presents a study of the relationship between risk management and mergers & acquisitions by analyzing the cross-sectional variation of acquirer abnormal returns in the gold mining industry as well as the likelihood of initiating a bid in the gold mining sector. The detailed review of the literature on merger decision determinants theory and related empirical findings provide the background used to develop the proposed empirical models. The study first proposes an analysis of abnormal returns to acquirers in the gold mining industry and finds a positive relationship between post-acquisition changes in the level of risk management and acquirer abnormal returns. Larger firms also seem to have greater difficulty integrating their targets and exhibit lower transaction related performance. The second empirical study shows that risk management levels have a positive impact on the firm's propensity to initiate a bid. The general findings of both empirical studies prove to be consistent for different estimation techniques and different model specifications. As risk management data and results become available for additional industries, it will be possible to show if these findings are specific to the gold mining industry or if they are representative of general merger and acquisition behavior.