University of Oulu

The effect of Piotroski F-score on short-term M&A returns : evidence from Europe

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Author: Kaleva, Aaron1
Organizations: 1University of Oulu, Oulu Business School, Department of Accounting, Accounting
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 1.2 MB)
Pages: 78
Persistent link:
Language: English
Published: Oulu : A. Kaleva, 2023
Publish Date: 2023-11-15
Thesis type: Master's thesis
Tutor: Jarva, Henry
Reviewer: Jarva, Henry
Kallunki, Juha-Pekka


This research objective was to unveil whether the separation of target companies by their financial profile in Mergers and Acquisitions (M&A) impacts stock returns. This research is motivated for M&A is an important research topic in finance for it pertains many pivotal aspects in corporate finance. M&A can be central vessel for companies seeking growth outside natural means, ownership amends, corporate restructures, and distressed companies in brink of bankruptcy seeking a resolution. M&A ties together imperative topics such as agency theory, efficient capital markets, valuation, financial statement analysis as well as highlights concerns regarding lemon investments.

This research examined the short-term abnormal returns of European domestic M&As in conjunction with fundamental analysis on the companies acquired. Piotroski’s F-score was chosen as the main methodology for fundamental analysis and assessment of the target company’s financial profile. F-score is heuristic, yet effective way to separate stock market winners from losers. This study is an extension of the Piotroski’s binominal grading system into M&A to assess whether inclusion of accounting numbers as can act as a predictor of M&A performance. This study investigates whether there lies a difference in the performance of low and high F-score companies. Event- study methodology was applied in this study in estimating the impact of M&A announcement on the acquirer’s short-term stock returns. The geographical focus of this study is Europe during 2010–2019 excluding cross-border M&As, yielding a final sample of 154 transactions.

This study finds similar results to prior M&A literature. Firstly, the full sample yields negative, and low scale losses during M&A announcements for the acquiring companies. The evidence indicates that the M&A announcements had no significant impact of the acquirer returns. Four different event windows were chosen to investigate impact of M&A announcements. The largest losses were during the longest event window, with minor losses in smaller event windows, although all negative. In comparison of high F-score and low F-score companies, the average abnormal returns were less negative in high F-score companies, albeit negative outcomes were evident in both groups. In the four event windows high F-score companies outperformed F-score companies, however both groups yielding negative returns yet again. As with the full sample, the results do not indicate that the M&A announcements had any significant impact on the acquirer returns, revealing that the market priced the M&A announcements effectively and timely. The fundamental analysis applied into M&A valuation seems not to separate winners from losers, but stock market losers from losers. Finally, the abnormal returns were regressed against a set of variables in a multivariate regression model, with the main objective to reveal whether Market-To-Book (MTB) ratio affected the M&A returns. The evidence further solidified the results in this study and concluded that the undervaluation through MTB imposes no predictor power over abnormal returns.

This research fosters and contributes to academic research concerning M&A, accounting, and finance. This study reinforces previous findings in M&A literature as well as furthers it by involving accounting measures, a much-desired metric for scrutiny. Finally, this research sheds light on the short-term performance of M&A events in relation to the financial profile of the target company.

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Copyright information: © Aaron Kaleva, 2023. Except otherwise noted, the reuse of this document is authorised under a Creative Commons Attribution 4.0 International (CC-BY 4.0) licence ( This means that reuse is allowed provided appropriate credit is given and any changes are indicated. For any use or reproduction of elements that are not owned by the author(s), permission may need to be directly from the respective right holders.