In the wake of the recent changes in the Indian economic scenario, many companies have embraced mergers as a restructuring tool for salvation. Such a move, though supported by powerful arguments and theories, is questioned in many empirical studies. Based on a sample of both related and unrelated mergers completed in mid-nineties, the present paper examines the economic consequences of mergers with a view of resolving the conflict. On empirical examination it is found that the modern mergers are primarily motivated by the firms with above industry-average performance and this trend continues to persist over the time.

The event study methodology employed to assess the extent of value creation by mergers, indicates that on an average mergers lead to value destruction, irrespective of their pattern over a long period of time and the destruction of value is relatively greater in case of unrelated mergers. In the light of the above empirical result, the paper draws a contradictory conclusion to the popular belief of merger as a means of corporate salvation and declares it to be a myth.

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