When the parts are greater than the sum: An event study analysis of vertical, horizontal, and conglomerate mergers
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I conduct an event study analysis on an initial sample of 223 mergers during a 3 year period (2011-2014) after the “Great Recession.” I first use this to shed new light on merger characteristics and effects in the post-crisis period, and I then categorize my sample into vertical, horizontal, and conglomerate mergers and calculate the equity-wealth effects for each category. Comparison of the equity-wealth effects of each merger type produces little evidence in support of theories espousing the relative value-decreasing effects of corporate diversification, and no evidence in support of theories claiming absolute value-destruction. In terms of merger antecedent theories, comparison of vertical, horizontal, and conglomerate merger returns reveals evidence that may be consistent with both collusive and synergistic theories of value creation in mergers. Additional insights derived through the analysis of this paper include results which provide evidence that the equity-wealth effects of mergers have become significantly more positive in the most recent period, and that the traditional methods by which financial researchers classify mergers into types may need further reevaluation.