Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)


Although empirical evidence consistently finds large premiums paid to target firms in acquisitions, the evidence concerning the acquiring firm is mixed. Some studies show that acquiring stockholders earn a significantly positive excess return, others find that the returns are negative, and still others conclude that acquiring stockholders earn normal returns like any other investment. There is limited evidence concerning the impact of mergers on bondholders of the participating firms. Asquith and Kim (1982) indicate that bondholders of the merging firms neither gain nor lose from mergers, while Settle et al. (1984) finds evidence that bondholders gain from mergers. Thus, while there are four separate classes of securityholders involved in mergers (1,2) stockholders of the target and bidder firms, respectively, and (3,4) bondholders of the target and bidder firms, respectively, there is only a consensus regarding the stockholders of the target firms. This study has two major purposes: (a) to re-examine the returns to the four classes of securityholders around the announcement of completed mergers and (b) to attempt to identify the sources of gains or losses to each group of securityholders. The sample consists of 579 acquiring and 361 acquired firms for stock returns analysis and 64 and 29 bonds for the bidder and target firms, respectively. These firms were involved in a merger that took place between June 1962 and December 1982. The second part of the study involves the estimation of a cross-sectional regression model for each of the four groups of securityholders involved in the mergers in the sample. Results from part (a) of the study are, in general, consistent with past research. The cross-sectional model to target firm's stockholders indicates that relative variability, method of payment and type of merger have a positive sign and are significant variables in explaining the excess returns to target stockholders, while relative Tobin's Q-ratio is significant and has a negative sign. The model has r-square of 21.34 percent and F-value of 6.61. The model to bidding firm's stockholders show that relative size and merger type are significant and positively related to the excess returns, while regulaton is significant and has a negative sign. The model has r-square of 12.31 percent and F-value of 3.42. (Abstract shortened with permission of author.).