Corporate Mergers and Shareholder Wealth Effects: 1977-1986

Abstract The paper investigates the distribution of returns to shareholders of UK companies involved in acquisitions during the period 1977-1986. Three control models were used in the analysis: the market model with parameters identified through OLS regression, a model based on adjusted betas, and finally an index-relative model. Abnormal returns were identified around both bid announcement and outcome dates for bidders and targets in completed and abandoned bids. Examination was also made of the distribution of wealth changes for bidders and targets separately and for both in combination. The results demonstrate that, although there is no net wealth decrease to shareholders in total as a result of takeover activity, shareholders of bidder firms do suffer wealth decreases. By contrast, shareholders in target firms obtained significant, positive wealth increases in both completed and abandoned bids.

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