Comparing acquisitions and divestitures

We study the acquisition and divestiture activity of a sample of 1305 firms from 59 industries during the 1990–1999 period. Consistent with the importance of restructuring activity during the 1990s, we find that half of the sample firms are acquired or engage in a major divestiture. Consistent with...

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Bibliographic Details
Published inJournal of corporate finance (Amsterdam, Netherlands) Vol. 6; no. 2; pp. 117 - 139
Main Authors Mulherin, J.Harold, Boone, Audra L
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.07.2000
Elsevier
SeriesJournal of Corporate Finance
Subjects
Acquisitions
Asset sales
Equity carve-outs
Spinoffs
Synergy
Acquisitions
Equity carve-outs
G34
Synergy
G14
Spinoffs
Asset sales
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Summary:We study the acquisition and divestiture activity of a sample of 1305 firms from 59 industries during the 1990–1999 period. Consistent with the importance of restructuring activity during the 1990s, we find that half of the sample firms are acquired or engage in a major divestiture. Consistent with the notion that economic change is a source of the observed restructuring activity, we find significant industry clustering in both acquisitions and divestitures. We also study the announcement effects of the two forms of restructuring and find that both acquisitions and divestitures in the 1990s increase shareholder wealth. Moreover, the wealth effects for both acquisitions and divestitures are directly related to the relative size of the event. The symmetric, positive wealth effects for acquisitions and divestitures are consistent with a synergistic explanation for both forms of restructuring and are inconsistent with nonsynergistic models based on entrenchment, empire building and hubris.
ISSN:0929-1199
1872-6313
DOI:10.1016/S0929-1199(00)00010-9