The impact of mergers on acquiring firm shareholder wealth: The 1905?1930 experience

Abstract

Abstract. From the standpoint of investors successful acquisitions increase profitability and stock price. Contemporary studies find acquiring firm shareholders earning small gains before and large losses after consolidation. Using modern financial market procedures, we examine a portfolio of 191 acquiring firms from 1905 to 1930 to determine the impact on firm owners of early industrial acquisitions in the United States and the effect of institutional changes on takeover gains. Acquisitions from 1905 to 1930 raised shareholder wealth by more than 3 percent, an increase exceeding gains from more recent mergers. Stock price continued to rise after completion for acquisitions before World War I, but fell dramatically for acquisitions during the oligopoly merger wave of the late 1920s.

The Impact of Takeovers on Shareholder Wealth during the 1920s Merger Wave

“…Previous financial research on historical takeovers has ignored target firms entirely and relied on samples of acquiring firms conditioned on the absence of previous merger activity (Borg, Borg, and Leeth (1989) and Leeth and Borg (1994)). In this paper, we examine both sides of the takeover market and investigate a comprehensive sample of acquiring firms.…”

Corporate governance and the returns to acquiring firms' shareholders: an international comparison

“…Mandelker (1974), Langetieg (1978), Firth (1980), Asquith (1983), Malatesta (1983), Varaiya and Ferris (1987), Bradley et al (1988), Magenheim and Mueller (1988), Franks and Harris (1989), Lang et al (1989), Bhagat et al (1990), Franks et al (1991), Agrawal et al (1992), Kang (1993), Berkovitch and Narayanan (1993), Houston and Ryngaert (1994), Leeth and Borg (1994), Smith and Kim (1994), Doukas (1995), Hubbard and Palia (1995), Gregory (1997), Higson and Elliott (1998), Maquieira et al (1998) Bradley et al (1988) and Weston et al (2001, p. 221). 7.…”

Corporate Governance and Neoclassical Economics

“…Leeth and Borg (1994) estimated post-merger losses to acquirers for acquisitions during the 1920s stock market boom (1925)(1926)(1927)(1928)(1929)(1930) of almost 24%. Langetieg (1978) estimates losses of >26% for mergers during a time period ending in the peak year of the 1960s boom (1969).…”