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Wealth creation of mergers in downturn markets

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  • Ulrich Erxleben
  • Dirk Schiereck

Abstract

We examine the short- and long-term effects of market phases on the wealth creation potential of mergers and acquisitions. We argue that transactions in weak market environments create more long-term value for shareholders than transaction in booming markets. The analysis focuses in particular on transaction in depressed markets to identify drivers of outperformance. The results show that more selective, smaller and cash financed acquisitions significantly increase shareholder wealth in weak market environments. However, acquisitions of distressed firms are highly value decreasing. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Ulrich Erxleben & Dirk Schiereck, 2015. "Wealth creation of mergers in downturn markets," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 317-345, October.
    • Handle: RePEc:spr:jmgtco:v:26:y:2015:i:4:p:317-345
    DOI: 10.1007/s00187-015-0217-y
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    More about this item

    Keywords

    Mergers and acquisitions; M&A; Market cycle; Valuation levels; Value creation; Weak markets; Boom markets; G14; G32; G34;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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