A STUDY OF RELATIVE COMMON EQUITY VALUE IN FIFTY MERGERS OF LISTED INDUSTRIAL CORPORATIONS, 1950–57*

Abstract

s of Doctoral Disscrtations 565 a nearly complete explanation for the exchange ratios in forty-five of the fifty mergers (only forty-five mergers were covered in the multiple correlations). The coefficient of multiple correlation for these forty-five mergers was 0.98 and the standard error of the estimate was 0.13. This result is of particular importance for future analysis because it indicates that objective measurable factors were the dominant determinants and that personal considerations and bargaining strengths and skills played only a minor role. 2. The dominant value base throughout the analysis was the common-stock market price, and this factor appears to have been largely responsible for the high coefficient of multiple correlation. The coefficient of correlation obtained in the simple correlation of the market price ratio and the exchange ratio in the fifty mergers was 0.95, standard error of the estimate was 0.18, and in the fortyfive mergers 0.95, standard error of the estimate was 0.17. It may be seen that these coefficients are not much lower than the coefficient of multiple correlation. 3. There was a pronounced tendency for the smaller constituent, measured in terms of total assets, in each merger to receive more favorable treatment in the merger terms than was indicated by the market-price relationships alone. 4. Cash dividends and earnings in the year just prior to the merger appear to have exerted little independent influence aside from their effect on market prices. Average earnings appear to have exerted some independent influence, although not to the extent that market price did. However, there was a tendency for average earnings relationships to receive unusual emphasis in mergers in which both constituents possessed stable earnings records. 5. There was some indication that book values received particular attention in mergers where a substantial block of one constituent's stock was held in relatively few hands. 6. Earnings trend appears to have been an important factor in mergers in which a pronounced earnings trend existed. This content downloaded from 207.46.13.28 on Wed, 31 Aug 2016 04:17:26 UTC All use subject to http://about.jstor.org/terms