Abstract

THE PURPOSE of this paper is to determine if mergers or acquisitions increase the return on investment of shareholders of acquiring firms. As a first step an equation which measures the return produced by a merger is formulated. Then the potential biases of past studies are briefly discussed in light of this equation. Following this the merger return formula is operationalized through the use of a common stock valuation model and empirical results are presented for a sample of mergers selected from the chemical industry.

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