New Evidence and Perspectives on Mergers

TLDR

Merger activity in the 1990s clusters by industry, with deregulation accounting for nearly half of the activity since the late 1980s. In the 1990s, mergers were mainly stock swaps, hostile takeovers vanished, and they generated positive stock‑market returns and improved operating performance for the involved firms.

Abstract

As in previous decades, merger activity clusters by industry during the 1990s. One particular kind of industry shock, deregulation, becomes a dominant factor, accountings for nearly half of the merger activity since the late 1980s. In contrast to the 1980s, mergers in the 1990s are mostly stock swaps, and hostile takeovers virtually disappear. Over our 1973 to 1998 sample period, the announcement-period stock market response to mergers is positive for the combined merging parties, suggesting that mergers create value on behalf of shareholders. Consistent with that, we find evidence of improved operating performance following mergers, relative to industry peers.