Since the 1980’s, extensive corporate mergers and acquisitions have had a
profound effect on virtually every major organization and their employees in the world. Historically, mergers and acquisitions have played a vital role in determining the
amount of competition in many U.S .industries. Merger and acquisition activity has
been instrumental in determining the relative size and diversification of many
organizations in the U.S. and has left a permanent mark on the structure of the economy.
Yip (1982) put forward that mergers, acquisitions, and internal development are
alternative means for expansion and growth for organizations. Yip’s findings suggested that
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Increasing shareholder income significantly ranked below other motives,
such as growth in profits, growth in sales and even organization was available. Thus, the interests
of the shareholders were not central to the acquisition of the targeted organization.
(You, 1968) and research findings (Ravenscraft and Scherer, 1987) supported this
research; evidence suggested that considerable numbers of mergers and acquisitions
occurred to increase the size of the firm and to generate greater prospects for the
organizations’ leadership. In evaluating and clarifying the influence of various merger
and acquisition theories, Trautwein found this grouping to have the most reliability.
Four other theories – efficiency theory, monopoly theory, raider theory, and
valuation theory – viewed mergers and acquisitions as rational choice, each proposing
that such mergers benefit the acquiring organization’s shareholders (refer to Table 1.0).
Efficiency theory proposed that mergers and acquisitions are designed and implemented
in order to accomplish synergies or other efficiencies (Trautwein, 1990). Although
managers often cited efficiency and synergy as reasons for mergers and acquisitions
(Friedman and Gibson 1988; Maremont & Mitchell 1988; Porter 1987), these claims have
come under criticism as being seldom realized (Kitching, 1967, 1973; Porter 1987).
Although size advantage does appear to exist in capital markets (Scherer, 1975), there has
been little evidence that mergers create superior internal capital markets (Montgomery &
Singh, 1984; Rumelt, 1982).
Jensen (1984, 1986) proposed that takeovers, a special set of circumstances with
acquisitions, were the consequence of corrective dynamics in the marketplace that take
effect to increase the effectiveness of the organizations’ leadership. When present
organizational leadership failed to gain acceptable results for shareholders from assets,
they utilized mergers and acquisitions to gain more efficient and cost-effective uses of
assets. Some circuitous confirmation was provided by research, which demonstrated that
the stock market, in general, values mergers and acquisitions positively (Dennis &
McConnell, 1986; Ravenscraft & Scherer, 1987; Weston & Chung, 1983). Ravenscraft
and Scherer (1987) and Kitching (1976) noted that acquired organizations generally were
performing above industry averages prior to their acquisition. Ravenscraft and Scherer
noted that only two of the most active acquiring organizations of the 1960s surpassed the
Standard and Poors index over the following twenty-one year period. In short, while
mergers and acquisitions resulted in improved performance for both the acquired and
acquiring organizations in concept, this benefit was not substantiated by evidence.
Monopoly theories were sometimes known as collusive synergies (Chatterjee, 1986) or
competitor interrelationships (Porter,...