Null hypothesis

Context (archaeology)

Control (management)

Market for corporate control

Efficient-market hypothesis

Market size

Biology

Microeconomics

Stock market

Commerce

Classics

Hubris

Economics

Discretion

Computer science

Mergers and acquisitions

Business

Corporate governance

Paleontology

Management

Political science

Monetary economics

Value (mathematics)

Econometrics

Tender offer

Horse

Financial economics

Alternative hypothesis

Finance

Machine learning

Shareholder

Event study

History

Managerial and Decision Economics

Despite the large number of event studies of mergers that have been undertaken, considerable disagreement still exists over whether mergers increase the value of the merging firms, and if so why. Most event studies measure the average returns to the acquired and acquiring companies' shareholders separately, and based on these averages conclude either that mergers increase wealth, or that they reduce it. From this the authors go on to claim support either for a hypothesis about how mergers increase efficiency, or for one that claims they do not. This paper develops a methodology that uses the distribution of gains and losses across the two samples of firms, and their relationship to one another to test four hypotheses about why mergers occur: (1) the market‐for‐corporate‐control hypothesis, (2) the synergy hypothesis, (3) the managerial discretion hypothesis, and (4) the hubris hypothesis. The hypotheses are tested with data for 168 mergers between large companies from 1978 through 1990. Considerable support is found for the managerial discretion and hubris hypotheses, and some support is found for the market‐for‐corporate‐control hypothesis. Little or no support is found for the hypothesis that mergers create synergies and that shareholders of both the acquiring and acquired firms share gains from these synergies. Copyright © 2003 John Wiley &amp; Sons, Ltd.

The causes of mergers: tests based on the gains to acquiring firms' shareholders and the size of premia