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Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave

  • SARA B. MOELLER
  • FREDERIK P. SCHLINGEMANN
  • RENÉ M. STULZ

Acquiring-firm shareholders lost 12 cents around acquisition announcements per dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. The 1998 to 2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisitions with negative synergy gains by firms with extremely high valuations. Without these acquisitions, the wealth of acquiring-firm shareholders would have increased. Firms that make these acquisitions with large dollar losses perform poorly afterward. Copyright 2005 by The American Finance Association.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 60 (2005)
Issue (Month): 2 (04)
Pages: 757-782

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Handle: RePEc:bla:jfinan:v:60:y:2005:i:2:p:757-782
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