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Are mergers and acquisitions efficient economic models, or not? Why, or why not? If not, how would you describe them?

Jul 16th, 2015

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One must admire the extensive findings about the market for corporate
control that have emerged from the methodology of event studies.
The methodology's neatness certainly explains the widespread acceptance
of their principal normative conclusion about mergers, especially
diversifying mergers: that they create value in the eyes of shareholders,
hence presumptively involve efficient re-allocations of control over resources,
and should therefore receive kind treatment from public policy.
Alas, this conclusion may well be wrong. the ex
post evidence on the efficiency of mergers, especially that developed
recently in the industrial organization camp, amounts to a convincing
rejection of the presumed efficiency of mergers. Furthermore, recent
developments in the study of corporate organization and governance
help us understand why firms enthusiastically pursue mergers that in
the end destroy value for their shareholders.
The first section briefly reviews the ex ante evidence from event
studies that supports a favorable evaluation of the efficiency of mergers.
It also considers what factors may explain the occurrence of mergers,
consistent with the world view that most finance specialists find congenial:
efficient capital markets and value-maximizing actors. Then we
turn to the evidence on the efficiency of mergers from the field of industrial
organization. There we find that the traditional modes of investigating
their ex post productivity sustain a fragile case for them at best, and
several important recent investigations provide strongly negative evidence.
Then we turn to recent research on the economics of corporate
governance for indications why nonproductive mergers may occur. The
concluding section reviews some implications of this evidence for both
business practice and public policy.

in this i find mergers inefficient for business as different individuals from

different businesses have very different approaches to certain issues and

these may lead to some sort or disagreement on matters that ought to be handled with a lot of care

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Jul 16th, 2015

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Jul 16th, 2015

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