Purely Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spin-Offs, and Structured Finance
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چکیده
In the presence of corporate taxes and default costs, mergers can realize purely financial synergies due to reduced risk and the potential for greater leverage, as suggested by Lewellen (1971). But his conclusion that mergers always create positive financial synergies is incorrect: when firms have quite different risks or default costs, the loss from no longer being able to fit different capital structure policies to separate activities may exceed the gain from diversification. C
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