Wealth creation of mergers in downturn markets

Abstract

We examine the short-and long-term effects of market phases on the wealth creation potential of mergers and acquisitions. We argue that transactions in weak market environments create more long-term value for shareholders than transaction in booming markets. The analysis focuses in particular on transaction in depressed markets to identify drivers of outperformance. The results show that more selective, smaller and cash financed acquisitions significantly increase shareholder wealth in weak market environments. However, acquisitions of distressed firms are highly value decreasing.