Mergers and acquisitions do not guarantee success for all business combinations. Past studies
show that successful firms that combine businesses can benefit from economies of scale or
economies of scope, but diversification for other reasons tends to be less successful (e.g.,
Shleifer and Vishny, 1989; Denis and McConnell, 2003; Besanko et al., 2004; Cole et al., 2006;
Hitt et al., 2009). Forms of the event study methodology have been the predominant method
used to measure the stock price responses to merger or takeover announcements, and most
studies suggest that takeovers create shareholder wealth (e.g., Beitel et al., 2002; Bruner,
2002; Kuipers et al., 2002; Campa and Hernando, 2004; Jensen, 2006; and Akbulut and
Matsusaka, 2010).
However, surveys reveal that target firm shareholder returns are on average significantly
positive; meanwhile, the evidence on bidding firms is far less conclusive (e.g., Datta et al.,
1992; Bruner, 2002; and Campa and Hernando, 2004). Jensen and Ruback (1983) and some
others, such as Sudarsanam and Ashraf (2003), Martynova and Renneboog (2008a), and
Eckbo (2009) show that the results are divided between those studies that report negative
and positive or zero returns to bidding firm’s shareholders.
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