Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-17T11:43:31.322Z Has data issue: false hasContentIssue false
  • English
  • Français

On Mergers, Divestments, and Options: A Note

Published online by Cambridge University Press:  06 April 2009

Oded H. Sarig
Get access Rights & Permissions [Opens in a new window]

Abstract

In this note, a loss shared by the security holders of merging firms is pointed out: separate corporate entities provide double protection against future negative cash flows that are partof any production process (e.g., when customer or employee liabilities exceed future income), independent of whether or not debt is used in the corporate capital structure. A merger involvesa relinquishment of this double protection in return for a less valuable single protection: limited liability in the merged corporation against combined negative cash flows.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 20 , Issue 3 , September 1985 , pp. 385 - 389
Copyright
Copyright © School of Business Administration, University of Washington 1985

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

[1]Asquith, P, and Kim, E. H.. “The Impact of Merger Bids on the Participating Firms’ Security Holders.” Journal of Finance, Vol. 37 (12 1982), pp. 1209–1228.CrossRefGoogle Scholar
[2]Firth, M. “Takeovers, Shareholders’ Returns, and the Theory of the Firm.” Quarterly Journal of Economics, Vol. 95 (03 1980), pp. 235–260.Google Scholar
[3]Galai, D., and Masulis, R. W.. “The Option Pricing Model and the Risk Factor of Stock.” Journal of Financial Economics, Vol. 3 (03 1976), pp. 53–87.Google Scholar
[4]Halpern, P. “Empirical Estimates of the Amount and Distribution of Gains to Companies in Merger.” Journal of Business, Vol. 46 (10 1973), pp. 554–575.CrossRefGoogle Scholar
[5]Higgins, R. C, and Schall, L. D.. “Corporate Bankruptcy and Conglomerate Mergers.” Journal of Finance, Vol. 30 (03 1975), pp. 93–113.Google Scholar
[6]Levy, H., and Sarnat, M.. “Diversification, Portfolio Analysis, and the Uneasy Case for Conglomerate Mergers.” Journal ofFinance, Vol. 28 (09 1970), pp. 795–802.Google Scholar
[7]Malatesta, P. H. “The Wealth Effect of Merger Activity and the Objective Functions of Merging Firms.” Journal of Financial Economics, Vol. 11 (04 1983), pp. 155–181.Google Scholar
[8]Merton, R. C. “Theory of Rational Option Pricing.” The Bell Journal of Economics, Vol. 4 (Spring 1973), pp. 141–183.Google Scholar
[9]Rubinstein, M. E. “A Mean-Variance Synthesis of Corporate Financial Theory.” Journal of Finance, Vol. 28 (03 1973), pp. 167–181.Google Scholar