This study, using a sample of 162 firms and industry-adjusted cash flow returns on market value of assets as performance criteria, examines the financial performance of the combined target and acquiring firms over a 5-year post-merger period in relation to the corresponding pre-merger period. We find that post-merger performance is negatively associated with relative target size and positively associated with long-term incentive compensation plans. Firms that are in dissimilar industries also show improved performance, as do firms that merged prior to 1983.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Price excludes VAT (USA)
Tax calculation will be finalised during checkout.
DeAngelo, H., L. DeAngelo and E. Rice, “Going Private: Minority Freezeouts and Stockholder Wealth.” Journal of Law and Economics 28, 367–401, (1984).
Healy, P. M., K. G. Palepu and R. Ruback, “Does Corporate Performance Improve after Mergers?” Journal of Financial Economics 31, 135–175, (1992).
Herman, E. S. and L. Lowenstein, in J. C. Coffee et al. (ed.), Knights, Raiders and Targets: The Impact of the Hostile Takeover, 211–240, (1988).
Jarrell, G., J. Brickley and J. Netter, “The Market for Corporate Control: The Scientific Evidence Since 1980.” Journal of Economic Perspectives 2, 49–68, (1988).
Jarrell, G. and A. Poulsen, Bidder Returns, Working paper, 1987.
Jensen, M. C. and R. S. Ruback, “The Market for Corporate Control: The Scientific Evidence.” Journal of Financial Economics, 5–50, (1983).
Lajoux, A. and J. Weston, “Do Deals Deliver on Post-merger Performance.” Mergers & Acquisitions, September/ October, 34–37, (1998).
Magenheim, E. and D. C. Mueller, in J. C. Coffee, et al. (ed.), Knights, Raiders and Targets: The Impact of the Hostile Takeover, 171–193, (1988).
Myers, S. and N. Majluf, “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have.” Journal of Financial Economics 13, 187–221, (1984).
Narayanan, M., “Managerial Incentives for Short-Term Results.” Journal of Finance, 40, 1469–1484, (1985).
Ravenscraft, D. J. and F. M. Scherer, “The Profitability of Mergers.” International Journal of Industrial Organizations, 101–116, (1989).
Smith, C. and R. Watts, “Incentive and Tax Effects of Executive Compensation Plans.” Australian Journal of Management 7, 139–157, (1982).
Tehranian, H., N. Travlos and J. Waegelein, “Management Compensation Contracts and Merger-Induced Abnormal Returns.” Journal of Accounting Research 25, 51–76, (1987).
Travlos, N., “Corporate Takeover Bids, Method of Payment and Bidding Firms' Stock Returns.” Journal of Finance 42, 943–963, (1987).