Merging utilities are frequently required to share the economic benefits of merging with ratepayers. These benefits are often measured by using stock price movements at the time of the merger announcement. While event studies of this sort can be a powerful and appropriate tool, improper application and interpretation can lead to misleading conclusions. In this paper, the authors review the basic event study approach to evaluation and discuss some of the complicating factors. They supply both flawed and correctly done event studies submitted in the merger application of SBC Communications and Pacific Telesis and some additional case studies.

This article was published in the Journal of Regulatory Economics, Vol. 14, p. 281–304, 1998.