Graduate School of Industrial Administration, Carnegie-Mellon University, Pittsburgh, Penn. 15213, U.S.A.
Available online 22 April 2002.
This study examines the market for acquisitions and the impact of mergers on the returns to the stockholders of the constituent firms. While employing the two-factor market model as recently developed and applied by Black-Jensen-Scholes and Fama-MacBeth, this study also considers changes in risk in analyzing the impact of mergers on stock prices. The results of the study are consistent with the hypothesis that the market for acquisitions is perfectly competitive and with the hypothesis that information regarding mergers is efficiently incorporated in the stock prices. Stockholders of acquiring firms seem to earn normal returns from mergers as from other investment-production activities with commensurate risk levels. Stockholders of acquired firms earn abnormal returns of approximately 14%, on the average, in the seven months preceding the merger.
An application of a three-factor performance index to measure stockholder gains from merger
Journal of Financial Economics, Volume 6, Issue 4, December 1978, Pages 365-383
Terence C. Langetieg
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This article re-examines the magnitude of stockholder gains from merger. To measure stockholder gains we employ four alternative two-factor market-industry models in combination with a matched non-merging control group. The four two-factor models are based on either the capital asset pricing model or Black's (1972) zero-beta model combined with two alternative industry factors. The four models are shown to produce generally consistent results. However, the results from a two-factor model are sometimes different from the results of a simpler one-factor model. Also, the introduction of a third factor, the non-merging control group, is shown to have a...