Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-15T14:54:37.719Z Has data issue: false hasContentIssue false
  • English
  • Français

Bankruptcy Avoidance as a Motive For Merger*

Published online by Cambridge University Press:  06 April 2009

Ronald E. Shrieves  and
Donald L. Stevens
Get access Rights & Permissions [Opens in a new window]

Extract

The phenomenal growth in corporate merger activity of the 1960s revived interest in the motives and effects relating to corporate mergers. In recent years, many theories for explaining mergers have been discussed and tested in the literature of finance, law, and economics. Various authors have argued that motives for merger include increased market power [15, 21, 23], achievement of operating or managerial scale economies [2, 8], diversification [6], tax reduction [19], growth maximization [14, 16], and bankruptcy avoidance [7, 10, 12, 13]. The bankruptcy avoidance motive is perhaps the most recently articulated of all merger motives, and perhaps the only one for which no systematic attempts at empirical validation have been forthcoming.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 3 , September 1979 , pp. 501 - 515
Copyright
Copyright © School of Business Administration, University of Washington 1979

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]Altman, E. I. “Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy.” Journal of Finance, Vol. 23 (09 1968), pp. 589–609.CrossRefGoogle Scholar
[2]Bain, J. S. “Advantages of the Large Firm: Production, Distribution and Sales Promotion.” Journal of Marketing, Vol. 20 (04 1956), pp. 336–46.CrossRefGoogle Scholar
[3]Baxter, Nevins D. “Leverage, Risk of Ruin and the Cost of Capital.” Journal of Finance, Vol. 22 (09 1967), pp. 395–403.Google Scholar
[4]Boyle, S. E. “Premerger Growth and Profit Characteristics of Large Conglomerate Mergers in the United States: 1948–1968.” St. John's Law Review, Vol. 44 (Special Edition) (Spring 1970), pp. 152–170.Google Scholar
[5]Conn, R. L. “The Failing Firm/Industry Doctrine in Conglomerate Mergers.” Journal of Industrial Economics, Vol. 24 (03 1976), pp. 181–187.Google Scholar
[6]Gort, M. “Diversification, Mergers, and Profits.” In The Corporate Merger, edited by Alberts, W., and Segal, J.. University of Chicago Press (1966).Google Scholar
[7]Higgins, R. C., and Schall, L. D.. “Corporate Bankruptcy and Conglomerate Merger.” Journal of Finance, Vol. 30 (03 1975), pp. 93–114.CrossRefGoogle Scholar
[8]Jacoby, N. “The Conglomerate Corporation.” Center Magazine, Vol. 2, No. 45 (07 1969).Google Scholar
[9]Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior, Agency Costs, and Capital Structure.” Journal of Financial Economics, Vol. 3 (10 1976).CrossRefGoogle Scholar
[10]Lee, W. Y., and Barker, H. H.. “Bankruptcy Costs and the Firm's Optimal Debt Capacity: A Positive Theory of Capital Structure.” Southern Economic Journal, Vol. 43 (03 1977), pp. 1453–1465.CrossRefGoogle Scholar
[11]Levy, H., and Sarnat, M.. “Diversification, Portfolio Analysis, and the Uneasy Case for Conglomerate Mergers.” Journal of Finance, Vol. 25 (09 1970), pp. 795–802.CrossRefGoogle Scholar
[12]Lewellen, W. “A Pure Financial Rationale for the Conglomerate Merger.” Journal of Finance, Vol. 26 (05 1971), pp. 521–537.CrossRefGoogle Scholar
[13]Linter, John. “Expectations, Mergers and Equilibrium in Purely Competitive Securities Market.” American Economic Review, Papers and Proceedings, Vol. 61 (05 1971), pp. 101–111.Google Scholar
[14]Mueller, D. C. “A Theory of Conglomerate Mergers.” Quarterly Journal of Economics, Vol. 83 (08 1969), pp. 643–659.CrossRefGoogle Scholar
[15]Preston, L. “The Industry and Enterprise Structure of the U.S. Economy.” General Learning Corporation (1971).Google Scholar
[16]Reid, S. R.Mergers, Managers, and the Economy. New York: McGraw–Hill (1968).Google Scholar
[17]Rubinstein, M. E. “A Mean–Variance Synthesis of Corporate Financial Theory.” Journal of Finance, Vol. 28 (03 1973), pp. 167–181.Google Scholar
[18]Siegel, Sidney. Nonparametrxc Statistics for the Behavioral Sciences. New York: McGraw–Hill (1956).Google Scholar
[19]Sinrich, N. “Tax Incentives and the Conglomerate Merger: An Introduction.” St. John's Law Review, Vol. 44 (Special Edition) (Spring 1970), pp. 1009–1013.Google Scholar
[20]Stanley, D. I., and Girth., M.Bankruptcy: Problems, Process, Reform. The Brookings Institution (1971).Google Scholar
[21]Steiner, P. O.Mergers. University of Michigan Press (1975).Google Scholar
[22]Stevens, D. L. “Financial Characteristics of Merged Firms: A Multivariate Analysis.” Journal of Financial and Quantitative Analysis, Vol. 8 (03 1973), pp. 149–158.CrossRefGoogle Scholar
[23]Stigler, G. J.The Organization of Industry. Irwin, Richard D. (1968).Google Scholar
[24]Warner, J. B. “Bankruptcy Costs: Some Evidence.” Journal of Finance, Vol. 32 (05 1977), pp. 337–347.CrossRefGoogle Scholar
[25]Weston, J. F.; Smith, K. V.; and Shrieves, R. E.. “Conglomerate Performance Using the Capital Asset Pricing Model.” Review of Economics and Statistics, Vol. 54 (11 1972), pp. 357–363.CrossRefGoogle Scholar