Merger Strategies and Capital Market Risk

The literature on corporate diversification suggests a relationship between the relatedness of merging firms and risk. We tested that notion by classifying 297 large mergers into four relatedness categories and by using three measures of risk: unsystematic, systematic, and total. The findings show t...

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Veröffentlicht in:Academy of Management journal 1987-12, Vol.30 (4), p.665-684
Hauptverfasser: Lubatkin, Michael, O'Neill, Hugh M.
Format: Artikel
Sprache:eng
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Zusammenfassung:The literature on corporate diversification suggests a relationship between the relatedness of merging firms and risk. We tested that notion by classifying 297 large mergers into four relatedness categories and by using three measures of risk: unsystematic, systematic, and total. The findings show that risk reduction may be a valid rationale for mergers but not for the reasons often cited. Specifically, all types of mergers are associated with significant increases in unsystematic risk. Related mergers, however, are associated with a significant decline in systematic and total risk. The possible contributions to the results made by market conditions and leverage were explored.
ISSN:0001-4273
1948-0989
DOI:10.5465/256154