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Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry

Published online by Cambridge University Press:  05 January 2012

David A. Becher ,
J. Harold Mulherin  and
Ralph A. Walkling
David A. Becher
Affiliation:
LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104. becher@drexel.edu, rw@drexel.edu
J. Harold Mulherin
Affiliation:
Terry College of Business, University of Georgia, 310 Herty Dr., Athens, GA 30602. mulherin@uga.edu
Ralph A. Walkling
Affiliation:
LeBow College of Business, Drexel University, 3141 Chestnut St., Philadelphia, PA 19104. becher@drexel.edu, rw@drexel.edu
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Abstract

Our work provides refined tests of the source of merger gains in a neglected industry: utilities. Utilities offer fertile ground for analysis of traditional theories: synergy, collusion, hubris, and anticipation. Utility mergers create wealth for the combined firm, consistent with both the synergy and collusion hypotheses. To distinguish between these hypotheses, we study rival stock returns across dimensions related to collusion: deregulation, geography, and horizontal and withdrawn deals. We also find that the impact of mergers on consumer prices is consistent with synergy rather than collusion. Analysis of industry rivals that become targets also rejects collusion and is consistent with anticipation.

Information

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 47 , Issue 1 , February 2012 , pp. 57 - 89
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2012

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