A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View

31 Pages Posted: 6 Jul 2000 Last revised: 10 Apr 2008

See all articles by R. Glenn Hubbard

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Darius Palia

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics; Columbia University - Law School

Date Written: April 1998

Abstract

One possible explanation that bidding firms earned positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially unconstrained' buyers acquire constrained' targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company-specific operational information, while the bidder provided capital-budgeting expertise.

Suggested Citation

Hubbard, Robert Glenn and Palia, Darius, A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View (April 1998). NBER Working Paper No. w6539. Available at SSRN: https://ssrn.com/abstract=226274

Robert Glenn Hubbard (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Darius Palia

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

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MEC 134
Newark, NJ 07102
United States
973-353-5981 (Phone)
973-353-1233 (Fax)

Columbia University - Law School ( email )

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New York, NY 10027
United States

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