Value creation in evolving information industries : the effects of U.S. mergers

• Main Author: Rhéaume, Louis
• Format: Others
• Published: 2000
• Online Access: http://spectrum.library.concordia.ca/1189/1/MQ54309.pdf; Rhéaume, Louis <http://spectrum.library.concordia.ca/view/creators/Rhe==0301aume=3ALouis=3A=3A.html> (2000) Value creation in evolving information industries : the effects of U.S. mergers. Masters thesis, Concordia University.

This study investigates two main issues: (1) to what extent the level of relatedness among targets and bidders in the information industries affect the shareholder value of the bidders, and (2) what is the performance of related versus unrelated mergers in the information industries compared to what has been documented in the literature. We study the impact of diversification, whether related or not, in uncertain environments. We report interesting patterns by focusing on technologically converging industries for the three sectors comprising the information industries: information content, information appliances and information highways. Using a sample of 344 U.S. mergers for the period 1993 to 1997, we examine the stock market's response to these mergers in the information industries using the event study methodology. Thus, a short-term and long-term event study is undertaken to analyze the abnormal returns associated with those mergers. Inconsistent with the general literature, which found slightly negative or zero abnormal returns for the bidders in the short-term, we found some patterns of positive returns. However, consistent with prior research on the performance of related versus unrelated mergers, we found mixed results. Cross-sectional analysis shows that research and development expenditures on total assets (measure of technological uncertainty) are significantly negatively related in the short-run with abnormal returns, while they are positively related in the long-run with abnormal returns.