Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-15T16:22:20.516Z Has data issue: false hasContentIssue false
  • English
  • Français

Merger and Stockholder Risk

Published online by Cambridge University Press:  06 April 2009

Terence C. Langetieg ,
Robert A. Haugen  and
Dean W. Wichern
Get access Rights & Permissions [Opens in a new window]

Extract

In a world characterized by perfect and complete capital markets, the success (or failure) of a merger is judged by the merger's impact on stockholder wealth. With completeness, the merger's impact on the probability distribution generating stockholder returns is unimportant. The perfect market assumption guarantees that the stockholder not satisfied with the consolidated firm's return distribution can frictionlessly sell his shares and reorder his portfolio; hence his only concern is the merger's impact on wealth. However, if we acknowledge the existence of commissions, taxes, and other frictions, or if markets are not complete, the merger's impact on the stockholder return distribution becomes relevant. In this study we will analyze 149 mergers involving large N.Y.S.E. firms. We will examine four different hypotheses related to the impact of merger on attributes of the stockholder return distribution. We focus our analysis on risk-related attributes including beta, total variance, residual variance, and several other risk-related attributes. In a companion paper, merger's impact on wealth is calculated for the same sample but will not be reported here.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 3 , September 1980 , pp. 689 - 717
Copyright
Copyright © School of Business Administration, University of Washington 1980

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Alberts, William W. “The Profitability of Growth by Merger.” In The Corporate Merger, ed. by Alberts, William W. and Segall, Joel E.. Illinois: University of Chicago Press (1974).Google Scholar
[2]Black, Fischer; Jensen, Michael C.; and Scholes, Myron. “The Capital Asset Pricing Model: Some Empirical Tests.” In Studies in the Theory of Capital Markets, ed. by Jensen, Michael C.. New York: Praeger Publishers (1972)Google Scholar
[3]Blume, Marshall. “On the Assessment of Risk.” Journal of Finance (03 1971), pp. 1–10.CrossRefGoogle Scholar
[4]Fama, Eugene F. “The Behavior of Stock Market Prices.” Journal of Business (01 1966), pp. 34–105.Google Scholar
[5]Fama, Eugene F., and MacBeth, James D.. “Risk, Return, and Equilibrium: Empirical Tests.” Journal of Political Economy (05–06 1973), pp. 607–636.CrossRefGoogle Scholar
[6]Federal Reserve Monthly Bulletin, published by the Board of Governors of the Federal Reserve System (1929–1969).Google Scholar
[7]Federal Trade Commission. Statistical Report on Mergers and Acquisition, Report No. 6–15–18 (10 1973).Google Scholar
[8]Firth, Michael. “Synergism in Mergers: Some British Results.” Journal of Finance (05 1978), pp. 670–672.Google Scholar
[9]Fischer, Lawrence. “Some New Stock Market Indexes.” Journal of Business (01 1966), pp. 191–225.CrossRefGoogle Scholar
[10]Friend, Irwin, and Blume, Marshall. “Measurement of Portfolio Performance under Uncertainty.” American Economic Review (03 1970), pp. 561–575.Google Scholar
[11]Jensen, Michael C. “Risk, the Pricing of Capital Assets, and the Evaluation of Investment Portfolios.” Journal of Business (04 1969), pp. 167–247.CrossRefGoogle Scholar
[12]Hamada, Robert S. “The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stock.” Journal of Finance (03 1969), pp. 13–31.CrossRefGoogle Scholar
[13]Haugen, Robert A., and Langetieg, Terence C.. “An Empirical Test for Synergism in Merger.” Journal of Finance (09 1975), pp. 1003–1013.CrossRefGoogle Scholar
[14]Langetieg, Terence C. Merger and Stockholder Welfare. Unpublished Ph.D. dissertation, Graudate School of Business, University of Wisconsin-Madison (06 1977).Google Scholar
[15]Langetieg, Terence C. “An Application of a Three-Factor Model to Measure Stockholder Gains from Merger.” Journal of Financial Economics (12 1978), pp. 365–384.CrossRefGoogle Scholar
[16]Lev, Baruch, and Mandelker, Gershon. “The Microeconomic Consequences of Corporate Mergers.” Journal of Business (01 1972), pp. 85–104.CrossRefGoogle Scholar
[17]Lewellen, Wilbur G. “A Pure Financial Rationale for the Conglomerate Merger.” Journal of Finance (05 1971), pp. 521–537.CrossRefGoogle Scholar
[18]Mandelker, Gershon. Risk and Return on Stocks of Merging Firms. Unpublished dissertation, Graduate School of Business, University of Chicago (04 1973).Google Scholar
[19]Mandelker, Gershon. “Risk and Return: The Case of Merging Firms.” Journal of Financial Economics (12 1974), pp. 303–335.CrossRefGoogle Scholar
[20]Miller, Merton H., and Scholes, Myron. “Rate of Return in Relation to Risk: A Re-examination of Some Recent Findings.” In Studies in the Theory of Capital Markets, ed. by Jensen, Michael C.. New York: Praeger Publishers (1972).Google Scholar
[21]Mood, A. M., and Graybill, F. A.. Introduction to the Theory of Statistics. New York: McGraw-Hill (1963), p. 358.Google Scholar
[22]Pettet, R. Richardson, and Westerfield, Randolph. “Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns.” Journal of Financial and Quantitative Analysis (09 1974), pp. 579–606.CrossRefGoogle Scholar
[23]Reid, Richardson S.Mergers, Managers, and the Economy. New York: McGraw-Hill, Inc. (1968).Google Scholar
[24]Roll, Richard. “Bias in Fitting the Sharpe Model to Time Series Data.” Journal of Financial and Quantitative Analysis (03 1969), pp. 271–289.CrossRefGoogle Scholar
[25]Smith, Keith V., and Schreiner, John C.. “A Portfolio Analysis of Conglomerate Diversification.” Journal of Finance (06 1969), pp. 413–427.CrossRefGoogle Scholar
[26]Steiner, Peter O. Mergers. Ann Arbor, MI: University of Michigan Press (1975).Google Scholar
[27]Theil, Henri. Principles of Econometrics. New York: John Wiley & Sons, Inc. (1970).Google Scholar