Unrelated Acquisitions

69 Pages Posted: 17 Mar 2012 Last revised: 25 Aug 2017

Date Written: June 28, 2013

Abstract

A large fraction of acquisitions occur between unrelated firms-acquisitions that are neither horizontal nor vertical. Unrelated acquirers have high levels of information asymmetry, have a higher cost of capital, are more financially constrained, and use more stock in their acquisitions. Nonetheless, unrelated acquisitions have positive cumulative abnormal announcement returns and outperform related acquisitions. Post-merger operating performance is also quite positive, suggesting that these are value-creating mergers. Post-merger, acquirer firm segments’ investments increase, consistent with unrelated acquisitions relaxing information asymmetry constraints on financing.

Keywords: Mergers, Acquisitions, Internal Capital Markets, Segment

JEL Classification: G34, G30, G32

Suggested Citation

Aggarwal, Rajesh K. and Baxamusa, Mufaddal H., Unrelated Acquisitions (June 28, 2013). AFA 2013 San Diego Meetings Paper, Available at SSRN: https://ssrn.com/abstract=2023578 or http://dx.doi.org/10.2139/ssrn.2023578

Rajesh K. Aggarwal

Northeastern University ( email )

413 Hayden Hall
360 Huntington Avenue
Boston, MA 02115
United States

Mufaddal H. Baxamusa (Contact Author)

University of St. Thomas ( email )

1000 LaSalle Ave.
Minneapolis, MN 55403
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
433
Abstract Views
2,868
Rank
123,360
PlumX Metrics