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The Impact of Takeovers on Shareholder Wealth during the 1920s Merger Wave

Published online by Cambridge University Press:  06 April 2009

John D. Leeth  and
J. Rody Borg
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Abstract

We examine the impact of merger announcements on protfolios of acquiring firm and target firm common stock from 1919 to 1930. despite vast changes in the economic and regulatory environment, overall acquisition profitability has remained remarkably constant over the last 70 and 80 years. Target firm shareholders in the 1920s clearly gained from takeovers, averaging abnormal retruns in excess of 15%, while acquiring firm shareholders essentially broke even. synergistic or monopolistic gains from consolidation were minimal. Unlike the more recent experience, target firm and acquiring firm abnormal returns were largely unaffected by the mode of acquisition, the means of financing, or the degree of industrial relatedness.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 2 , June 2000 , pp. 217 - 238
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

Bentley college, department of Economics, 175 Forest street, MA 02452, and Jack-sonville University, Davis College of Business, 2800 University Boulevard North, Jacksonville, FL 32211, respectively. We thank Patrick Byrne, Jay Flecher, Ronald Fontaine, Breton Hanley, and Tara Nussman for help in collecting the financial data, and Ralph Nelson for permitting us to use his and carl Eis's worksheets on merger activity from 1919 to 1930. We also thank T. Randolph Beard, Steve Grubaugh, David Gulley, Jonathan Karpoff (the editor), Lori Leeth Matsusaka (the referee), Dennis Mueller, Rexford Santerre, and Scott Summer for their helpful comments.

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