Abstract
Recent studies on merger waves (for example, Maksimovic and Phillips (2001) and Javanovic and Rousseau (2001)) have established that high merger activity is correlated with high stock market valuations. This finding is particularly important, since it indicates that high stock market valuations, which ex post frequently turn out to have been misvaluations, may have an impact on merger activities in a systematic way. It is therefore of little surprise that recent studies on the wealth effects of mergers have documented a growing body of anomalies; for example, cash offers systematically outperform stock offers (Loughran and Vijh, 1997); value acquirers outperform glamour acquirers (Rau and Vermaelen, 1998); and small bidders outperform large bidders (Moeller, et al. 2004).
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