69 Pages Posted: 17 Mar 2012 Last revised: 25 Aug 2017
Date Written: June 28, 2013
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: Suggested Citation