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Rev Fin 1990; 3:343-365
© 1990 the Society for Financial Studies

Article

Consistent estimation of cross-sectional models in event studies

BE Eckbo, V Maksimovic and J Williams
Faculty of Commerce, University of British Columbia, Vancouver, Canada V6T 1Y8

Abstract

Event studies often include cross-sectional regressions of announcement effects on exogenous variables. If the event is voluntary and investors are rational, then standard OLS and GLS estimators are inconsistent. Consistent ML estimators are constructed for a cross-sectional model of horizontal mergers relating announcement effects to exogenous characteristics of firms and industries. The OLS and ML estimates differ dramatically for bidders but not for targets. The evidence suggests that manager of bidders, but not targets, have valuable private information about the potential synergies from proposed mergers.


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