“Mergers versus Acquisitions: Theory and empirical evidence”

Strategy & Business Policy

Speaker: Joseph A. Clougherty

Professor - UIUC

Conference  Jouy-en-Josas T015

Abstract:

We differentiate between mergers and acquisitions based on the potential for partnering firms to respectively engage in two-way or one-way efforts in obtaining operational efficiencies. Our model predicts that acquiring firms engaged in mergers will be characterized by both a higher mean and a higher variance in operational-efficiency gains. These higher-mean and higher-variance tendencies for mergers vis-à-vis acquisitions involve countervailing effects when factoring stock-market valuations; hence, mergers are discounted when financial markets are characterized by high degrees of risk aversion. Employing data on up to 38,706 transactions covering 1986 to 2009, we find strong empirical support for our three theoretical predictions.