The impact of merger on stockholder risk
Author(s)
Advisor
Aydoğan, KürşatDate
1991Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
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Abstract
The main purpose of this study is to investigate
empirically the impact of merger on stockholder risk.
Mergers between LSE firms during the period 1983~1986 are
examined.
The literature provides three major hypotheses concerning
merger and risk. These are tested to see whether the
magnitude and the direction of change in risk following
mergers is compatible with what is hypothesized. To gai
further insight, the discrepancy between the systemati
risk of the merged firm and that predicted by CAPM
modelled using several market variables.Market model
employed to estimate three measures of risk: Systemati
unsystematic, total.
n
Given the limitations of the sample and research design,
mergers are found to be associated with an increase in
systematic risk over what is hypothesized. The absolute
difference of premerger systematic risks of acquiring and
acquired firms and financial leverage of the merged firm
are found to explain the discrepancy between the actual and
hypothesized level. On the contrary to systematic r-isk,
unsystematic risk has not changed relative to premerger
value of the acquiring company.
The findings show that on average market takes a riskier
view of the merged firm than its components and risk
reduction may not be a valid rationale for mergers.
Stockholders must question the mergers justified on the
basis of risk reduction alone, since they can achieve the
same reduction in unsystematic risk by portfolio
diversification and mergers do not provide any benefits in
terms of systematic risk reduction.
Keywords
MergerAcquiring firm
P/E game
Portfolio еffесt
Risk reducing effect
Unsystematic risk
Market Model
OLS