The Impacts of Relative Size and Industrial Relatedness, on the Returns to Shareholders of Acquiring Firms
Consolidation & merger of corporations; Stockholder wealth; Capital contributions; Stockholders; Stocks (Finance); Industrial management
The premise of this paper is that in mergers the manageability of acquisitions significantly affects the wealth of shareholders of acquiring firms. Specifically, the relative size of partners as well as the industrial relatedness of the two firms are examined. The test period allows for the determination of announcement, interim, and consummation effects of the mergers on shareholder wealth. It is found that acquisitions of relatively large firms from unrelated industries lead to significant declines in the wealth of shareholders of acquiring firms, and that this result is most pronounced when the period is extended beyond the announcement through the effective dates.