Unrelated Acquisitions

69 Pages Posted: 17 Mar 2012 Last revised: 25 Aug 2017

Date Written: June 28, 2013

Abstract

A large fraction of acquisitions occur between unrelated firms-acquisitions that are neither horizontal nor vertical. Unrelated acquirers have high levels of information asymmetry, have a higher cost of capital, are more financially constrained, and use more stock in their acquisitions. Nonetheless, unrelated acquisitions have positive cumulative abnormal announcement returns and outperform related acquisitions. Post-merger operating performance is also quite positive, suggesting that these are value-creating mergers. Post-merger, acquirer firm segments’ investments increase, consistent with unrelated acquisitions relaxing information asymmetry constraints on financing.

Keywords: Mergers, Acquisitions, Internal Capital Markets, Segment

JEL Classification: G34, G30, G32

Suggested Citation

Aggarwal, Rajesh K. and Baxamusa, Mufaddal H., Unrelated Acquisitions (June 28, 2013). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2023578 or http://dx.doi.org/10.2139/ssrn.2023578

Rajesh K. Aggarwal

Northeastern University ( email )

413 Hayden Hall
360 Huntington Avenue
Boston, MA 02115
United States

Mufaddal H. Baxamusa (Contact Author)

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States

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