An Empirical Study on M&A Performance: Evidence from Horizontal Mergers and Acquisitions in the United States

Abstract

Synergy theory holds that horizontal mergers and acquisitions (M&A) are conducted to obtain economies of scale. Horizontal M&A help companies restructure assets and resources, thereby improving the efficiency of management. Technology diffusion from the same industry help companies complement each other in R&D and improve product quality and efficiency. In addition, horizontal M&A can eliminate duplicate labor and achieve efficient use of equipment, thereby reducing fixed production costs. Scholars have made fruitful researches on the motives of horizontal M&A, and tend to agree that companies can profit from horizontal M&A. There are mixed results of empirical research on the effect of horizontal M&A, and cases of M&A failure occur from time to time. Whether horizontal M&A can achieve the desired results of managers? This paper chooses the horizontal M&A events between 1995 and 2005 when both sides of M&A are listed companies in the United States. Event study method is used to compare the volatility of stock prices in the event window of each participant to test the short-term performance of horizontal M&A. The empirical results of this paper show that the stock market in the United States has responded about a week before the announcement date of horizontal M&A due to the lack of standardization of information disclosure or inadequate regulatory means. Horizontal M&A enhance the shareholder wealth of the targets in the short term, while cause loss of shareholder wealth of the bidders on the announcement day of M&A.