Mergers and information

Abstract

Despite the fact that mergers are a ubiquitous phenomenon of economic life, the reasons why firms do merge are yet only poorly understood. This thesis attempts to improve our theoretical understanding of mergers. A merger consists of a legal transformation through which two or more formerly independent firms come under common control. Mergers are particularly interesting and pose a wide variety of research questions due to some stylised facts. World wide merger activity was outstanding during the last decade (peaking in 2000 with a volume of more than $3 trillion US dollars1), showing that the merger strategy has been preferred to alternative corporate strategies such as re-structuring or expansion. Despite these intense merger movements, there is no clear evidence that firms improve performance after merging. On the contrary, indicators tend to point to a poorer performance relative to the industry. Finally, and perhaps most interestingly, mergers appear to occur in ’waves’. Waves in the sense that the number of past mergers affects positively the number of current mergers up to a point where the number of mergers starts smoothly decreasing. The current merger movement that initiated the downturn in 2001 corresponds to the fifth historical merger wave, being the first one back in the nineteenth century. The findings on poor post merger performance apply to most of the previous waves.