ABSTRACT
What motivates firms to engage in mergers and acquisitions has been a topic of immense interest to academics and practitioners over the past two decades. This interest stems from the various empirical findings which suggest that more than two-thirds of all merger deals are a financial failure when measured in terms of their ability to deliver profitability (Ravenscraft and Scherer, 1987; Tetenbaum, 1999; Hudson and Barnfield, 2001). In a more boarder context, prior studies suggest that the ability for mergers and acquisitions to create value for acquiring shareholders have been mixed. One stream of research has reported significant positive returns for acquirers (see Kang, 1993; Markides and Ittner, 1994; Kiymaz, 2003). On the other hand, other studies have found negative and insignificant bidders’ returns (Eun et al., 1996; Datta and Puia, 1995; Aw and Chatterjee, 2004). Studies such as those by Erez-Rein at al. (2004) and Carleton (1997) have noted that M&A, generally, fail to meet the anticipated goals. Despite the apparent failure of many M&A to meet the expected goals we continue to see a rising trends in merger and acquisition activities. For example, the United Nations Conference for Trade and Development (UNCTAD, 2006) reported that the UK is one of the largest acquiring countries in the world with a share of about 30% of the total value of global CBM&A. The question is, Why do companies continue with this activity given the solid evidence of its relative failure? This paradox is central to the study of mergers and acquisitions.
