How Different is the Long-Run Performance of Mergers in the Telecommunications Industry?

21 Pages Posted: 8 Mar 2001

See all articles by Stephen P. Ferris

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business

Date Written: March 2, 2001

Abstract

Using a sample of telecommunications mergers during the 1990-1994 period, we find that acquiring firms underperform relative to their size and industry matched control firms. The annual cumulative abnormal returns (CARs) to these firms are significantly negative for five years following the merger. Shareholders of the acquiring firm suffer a wealth loss of nearly 20% over the five-year post-merger period. We obtain similar results from three- and five-year holding period returns (HPRs). Our findings are consistent with those reported by earlier studies and indicates that regulated industries also experience post-merger underperformance. We do find however upon disaggregation of the sample that larger mergers exhibit positive long-run performance while the mid-size and smaller mergers underperform relative to their control firms. We further observe that conglomerate mergers demonstrate superior long-run performance while that for non-conglomerate mergers is consistent with the aggregate sample findings and suggests significant underperformance.

JEL Classification: G30, G34, K23

Suggested Citation

Ferris, Stephen P. and Park, Kwangwoo, How Different is the Long-Run Performance of Mergers in the Telecommunications Industry? (March 2, 2001). Available at SSRN: https://ssrn.com/abstract=262388 or http://dx.doi.org/10.2139/ssrn.262388

Stephen P. Ferris (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

Kwangwoo Park

KAIST (Korea Advanced Institute of Science and Technology) - College of Business ( email )

85 Hoegiro
Seoul 02455
Korea, Republic of (South Korea)
82-2-958-3540 (Phone)
82-2-958-3604 (Fax)

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