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Licensed Unlicensed Requires Authentication Published by De Gruyter October 15, 2009

An Efficiency Perspective on the Gains from Mergers and Asset Purchases

  • Sugata Ray and Missaka Warusawitharana


A rational, efficiency-based view of acquisitions implies that larger transactions generate greater gains for the acquirer and the seller. We test this prediction and find a positive relationship between acquirer abnormal returns and transaction size scaled by the acquirer size. This relationship holds for many classes of acquisitions, including asset purchases and mergers that target private firms. We find a similar relationship between total abnormal returns and relative transaction size. The results suggest that, in general, acquisitions help shift capital to more productive owners. Furthermore, we present evidence demonstrating that the average acquirer captures a significant portion of the total gains generated from an acquisition.

Published Online: 2009-10-15

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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