Fifty Years of Diversification Announcements

A century of corporate takeovers: What have we learned and where do we stand?

“…This is also confirmed by for the fifth takeover wave: the takeovers with the largest losses occurred during the second half of the wave (namely, from 1998 to 2001). However, a study on diversifying acquisitions reflects a different picture: Akbulut and Matsusaka (2003) present evidence that diversifying takeovers are associated with insignificant abnormal returns for combined firms in the first half of takeover waves and with significant abnormal gains in the second half.…”

“…These studies argue that poor performance results from factors other than diversification. For an overview of these studies, seeMartin and Sayrak (2003).13 Similar findings are reported inMatsusaka (1993),Klein (2001), Scherer (1987, 1989),Hubbard and Palia (1999).14 For evidence seeAkbulut and Matsusaka (2003),Klein (2001),Morck et al (1990),Lang and Stulz (1994),Berger and Ofek (1995).15 This argument is valid in a frictionless world, but transaction costs, asymmetries of information, and agency conflicts can prevent efficient transfers of control.…”

“…12 However, for the M&As that occurred prior to the 1970s, the empirical literature reports that the market favoured expansion into unrelated businesses. An extensive study of diversifying acquisitions by Akbulut and Matsusaka (2003) shows that unrelated acquisitions in the 1960s generated significantly positive abnormal returns to bidder shareholders 13 , but were found to be value destroying in later decades. Similarly, Morck et al (1990) observe that stock returns to diversifying acquisitions were statistically insignificant from zero in the 1970s but became negative in the 1980s.…”

“…An extensive study of diversifying acquisitions byAkbulut and Matsusaka (2003) shows that unrelated acquisitions in the 1960s generated significantly positive abnormal returns to bidder shareholders, but were found to be value-destroying in later decades.…”

The Euro and the Changing Face of European Banking: Evidence from Mergers and Acquisitions

“…(2002) report ‘that focused acquisitions lead to greater synergies and operating efficiencies than diversifying acquisitions.’ (p. 281). Akbulut and Matsusaka (2003) show that announcement‐period gains to firms making a diversifying acquisition vary over time, ranging from significantly positive in the late 1960s to significantly negative in the early 1980s, and insignificant in the 1990s. Doukas and Travlos (1988) show that the gains from cross‐border acquisitions are larger in diversifying mergers when targets are from new geographical areas.…”