Mergers and Acquisitions: A Financial Economics Perspective

In this paper, I begin by describing and assessing the different criteria simple criteria used by financial economists to evaluate merger success. I then discuss the empirical evidence on mergers and acquisitions in the corporate finance literature beginning with stock return studies, moving to accounting-based studies, and finishing with some discussion of clinical studies. Next, I discuss what these studies imply about the sources of gains and losses, and the factors that drive merger success. Finally, I discuss the implications of these findings for antitrust policies towards mergers. Taken as a whole, the empirical evidence in the financial economics literature does not provide any support for a more aggressive merger enforcement policy. If anything, the evidence supports a less aggressive policy. Prepared for the Antitrust Modernization Commission Economist’s Roundtable on Merger Enforcement on January 19. 2006. Steven N. Kaplan is Neubauer Family Professor of Entrepreneurship and Finance, University of Chicago Graduate School of Business and National Bureau of Economic Research. I thank Michael Klass and Olivier Lehmann for helpful comments. Address correspondence to Steven Kaplan, University of Chicago Graduate School of Business, 5807 South Woodlawn Avenue, Chicago, IL 60637 or e-mail at .