MERGERS, ANTITRUST LAW ENFORCEMENT AND STOCKHOLDER RETURNS

THE CELLER-KEFAUVER AMENDMENT of 1950 revitalized the antimerger statute contained in Section 7 of the Clayton Act.' An unparalleled wave of merger activity after this revision [17] was accompanied by an acceleration of antimerger law enforcement activities [21]. Notwithstanding the importance of these developments, there has been no systematic attempt to ascertain the effects of the enforcement experience on the wealth position of affected stockholders. This paper examines the risk and return characteristics of 205 large corporations whose merger activities were challenged by the Antitrust Division of the Department of Justice or the Federal Trade Commission over the period 1950-1972. The stock price and dividend records of these companies are examined for evidence of abnormal rate of return behaviour before and after the issuance of Section 7 complaints. The impact of the divestiture program is studied and comparisons are made to the returns realized by stockholders in companies whose merger activity was not challenged under the antitrust law. The following section presents some competing hypotheses on the relationships between merger activity, antitrust enforcement and the pattern of stockholder returns. Research methodology, data sources, and sample selection are discussed in Section II and in the Appendix. The empirical evidence is presented and analyzed in Section III. The results are summarized in Section IV.