The Market Timing of Mergers and Acquisitions – Evidence from Ramadan

We investigate market timing behaviors by corporate managers. During Ramadan, the perceived overvaluation of firms may induce managers to time acquisitions. We find that, consistent with the market timing hypothesis, on average during Ramadan, aggregate mergers and acquisitions (M&A) activity is higher, managers are less likely to listen to the market and post-acquisition performance is lower. Further analyses show differing results for the top three M&A countries in our sample. Results for Malaysia show strong evidence for detrimental market timing during Ramadan: for deals announced during the period, managers are less likely to listen to the market, the probability of stock acquisitions is higher as is the probability of deal completion, and post-merger operating performance is worse. Conversely, there is no evidence for market timing in Turkey and Saudi Arabia. We tentatively interpret results for the latter two countries as consistent with religious sentiment leading to higher quality deals during Ramadan.