A Preliminary Analysis of Shifts in Market Model Regression Parameters in International Mergers Between US and British Firms: 1970–1980

Abstract

This paper reports preliminary evidence on pre to post‐event shifts in the estimated values of the parameters, alpha and beta, of the simple regression market model. Samples, of US and British firms engaged in cross‐country acquisition, during the period 1970–1980 are examined. Using pre, pooled, and post‐event estimation periods, both alpha and beta show pronounced shifts in estimated value from the pre to the post‐event period. It is shown that these parameter shifts result in companion shifts in estimated pre to post‐even excess residual estimates. It is further shown, in the context of the market model, that shifts in alpha value account for approximately 80% of the shifts in excess residual estimates. Shifts in estimated beta account for only approximately 20% of the changes in estimated excess residuals. This result is interesting in regard to the results reported in most of the event study literature, which primarily consider only beta estimates.

Citation

Connell, F. and Conn, R.L. (1993), "A Preliminary Analysis of Shifts in Market Model Regression Parameters in International Mergers Between US and British Firms: 1970–1980", Managerial Finance, Vol. 19 No. 1, pp. 47-77. https://doi.org/10.1108/eb013709