The effects of changes in corporate focus on wealth changes and redistribution in pure stock exchange mergers.

摘要

The purpose of this dissertation is to determine if a systematic relationship exists between changes in firms operating and financial performance and changes in corporate focus effected through pure stock-exchange mergers. I limit my sample to pure stock-exchange mergers as they represent self-contained financial systems in which securityholder wealth changes and redistributions are distinctly identifiable.;Security market assessments of pure stock-exchange mergers exhibit a strong positive relation between synergistic gains and merger-related changes in focus. Financial synergies, as reflected by abnormal returns to nonconvertible bonds and preferred stocks, accrue to only those firms which engage in focus-preserving/increasing mergers. Common stock abnormal returns, reflecting expected operational synergies, are significantly positive in focus-preserving/increasing mergers and insignificant in focus-decreasing mergers. However, a comparison of acquiring firms' common stock abnormal returns reveals significantly positive returns in focus preserving/increasing mergers and significantly negative returns in focus-decreasing mergers. Additionally, I find no evidence of wealth redistributions between security classes.;Post-merger operating performance results are largely consistent with the security market assessments. Focus-decreasing mergers suffer significant declines in post-merger cash flow performance while focus-preserving/increasing mergers experience no significant changes in post-merger cash flow performance. Post-merger financial performance results also exhibit a significant penalty for firms engaging in focus-decreasing mergers. On average, the market-to-book ratio of firms engaging in focus-decreasing mergers declines 16% over the five year post-merger period while the ratio for firms engaging in focus-preserving/increasing mergers remains unchanged over the post-merger period. My findings also indicate that the initial security market assessments of focus-decreasing mergers have significantly declined over time. Taken together, these results are consistent with efficient security markets which learn over time. In this case, security markets have learned of the failure of diversifying mergers.;A final empirical result which I present in this research is that the level of common stock ownership is significantly higher for the officers and directors of the acquiring firms in focus-preserving/increasing mergers than those in focus-decreasing mergers.