The danger of misinterpreting short-window event study findings in strategic management research: an empirical illustration using horizontal acquisitions

Short-window event studies are popular in the strategic management literature. These studies assume that the market's initial reaction to strategic events reflects their economic impact in an unbiased manner. This assumption may hold in some cases, but when an event has complex ramifications that are difficult to predict,the initial market response may be biased and/or incomplete. Acquisitions are complex events, suggesting that results from short-window event studies of acquisitions may foster incorrect inferences. Using a sample of horizontal acquisitions, this article shows that the positive initial market response to an acquisition announcement is contradicted by negative long-run post-acquisition returns, suggesting that the initial response is incorrect and that the error is rectified later. Our findings imply that short-window event studies may not accurately capture the economic impact of complex strategic actions, for the interpretation and use of event studies.