A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View

Robert Glenn Hubbard () and Darius Palia

No 6539, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: One possible explanation that bidding firms earned positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially unconstrained' buyers acquire constrained' targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company-specific operational information, while the bidder provided capital-budgeting expertise.

JEL-codes: G3 (search for similar items in EconPapers)
Date: 1998-04
Note: CF
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