An Efficiency Perspective on the Gains from Mergers and Asset Purchases

Ray, Sugata; Warusawitharana, Missaka

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An Efficiency Perspective on the Gains from Mergers and Asset Purchases

B.E. Journal of Economic Analysis & Policy, Vol. 9 (Contributions)

27 Pages Posted: 14 Nov 2006 Last revised: 18 Oct 2009

See all articles by Sugata Ray

Sugata Ray

University of Alabama - Department of Economics, Finance and Legal Studies

Missaka Warusawitharana

Board of Governors of the Federal Reserve System

Date Written: August 12, 2009

Abstract

A rational, efficiency-based view of acquisitions imply that larger transactions generate greater gains for the acquirer and the seller. We test this prediction and find a positive relationship between acquirer abnormal returns and transaction size. This relationship holds for many classes of acquisitions, including asset purchases and mergers that target private firms. We find a similar relationship between total acquirer and seller abnormal returns and transaction size. The results suggest that, in general, acquisitions help shift capital to more productive owners. Furthermore, we present evidence demonstrating that the average acquirer captures a significant portion of the total gains generated from an acquisition.

Keywords: Mergers, Asset purchases, Efficiency gains, Acquisitions, event study

JEL Classification: G14, G34, G30

Suggested Citation: Suggested Citation

Ray, Sugata and Warusawitharana, Missaka, An Efficiency Perspective on the Gains from Mergers and Asset Purchases (August 12, 2009). B.E. Journal of Economic Analysis & Policy, Vol. 9 (Contributions), Available at SSRN: https://ssrn.com/abstract=944811