Merger strategies and capital market risk

Article Abstract:

The literature on corporate diversification suggests a relationship between the relatedness of merging firms and risk. We tested that notion by classifying 297 large mergers into four relatedness categories and by using three measures of risk: unsystematic, systematic, and total. The findings show that risk reduction may be a valid rationale for mergers but not for the reasons often cited. Specifically, all types of mergers are associated with significant increases in unsystematic risk. Related mergers, however, are associated with a significant decline in systematic and total risk. The possible contributions to the results made by market conditions and leverage were explored. (Reprinted by permission of the publisher.)

Risk assessment, Economic aspects, Acquisitions and mergers, Diversification in industry, Industrial diversification

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Diversification, systematic risk, and shareholder return: a capital market extension of Rumelt's 1974 study

Article Abstract:

This study reexamined the performance outcome of diversification strategies by combining the advantages of security-market-based measures and Rumelt's classification scheme. The findings underscore the popular, though weakly supported, belief that controlled diversity is associated with the highest performance. Specifically, firms that diversified in a constrained manner demonstrated significantly lower levels of systematic risk and significantly higher levels of shareholder returns than firms employing other strategies. (Reprinted by permission of the publisher.)

Risk (Economics), Securities

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Stockholder reactions to CEO changes in large corporations

Article Abstract:

The literature on leadership suggests that the performance context of a succession event and the origin of a newly appointed leader moderate the relationship between the succession and its consequences for performance in large corporations. We tested that premise with data from 477 large corporations and a measure of excess stock market returns. The findings show that investors are most favorably predisposed to successions in which outsiders are appointed to financially healthy firms. (Reprinted by permission of the publisher.)

Management, Stockholders, Beliefs, opinions and attitudes, Corporations, Chief executive officers, Investor relations, Leadership

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