Sugiarto, Agus (2000) The effect of mergers and acquisitions on shareholder returns. Other Degree thesis, Victoria University of Technology.

Abstract

Mergers and acquisitions net only affect the value of merging firms but also generate a positive or negative wealth effect for shareholders of firms involved. The Hubris theory hypothesises that mergers and acquisitions affect the value of the firms as well as shareholder wealth. This theory predicts that as a result of mergers and acquisitions, the value of target firms rises, whilst the value of bidding firms diminishes. Censequently, shareholders of target firms gain a positive wealth effect while shareholders of bidding firms experience a negative wealth effect. Most empirical evidence suggests that shareholders of bidding firms suffer a small loss or sometimes earn a marginal gain while the target shareholders obtain a large gain. However, no previous studies on shareholder wealth effect have investigated whether the differences in abnormal returns are influenced by differences in controlling interest in the target firms. The purpose of the present study is to investigate whether an acquisition of more than 50% and an acquisition of less than 50% generate the same wealth effects for the shareholders of bidding and target firms.

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