Why Mergers Fail

Ralph Sonenshine

Working Papers from American University, Department of Economics

Abstract: A number of empirical studies have shown that negative abnormal returns often result shortly after a once promising merger is consummated. There are few consistent explanations, however, as to why so many mergers result in such poor performance. This paper sheds light on this issue by examining the effect that structural factors (including market concentration and R&D intensity) have on post-merger abnormal returns. The paper also attempts to assess how differences in valuation among bidders, along with the presence of multiple bidders, influencethe performance of the merged firm. Our findings show that firm value is positively impacted in the first one to three years post merger by acquiring related assets, but that participating in a merger wave in these years has a negative influence. Over longer periods of time these effects are not evident and instead post-merger performance is impacted foremost by intangible asset intensity.

Keywords: Mergers; Challenges; Abnormal Returns; Research and Development (R&D); Market Concentration (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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https://doi.org/10.17606/wx28-f317 First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:amu:wpaper:2011-05

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