A reexamination of the conglomerate merger wave in the 1960s: An internal capital markets view

R. Glenn Hubbard, Darius Palia

Research output: Contribution to journalReview articlepeer-review

160 Scopus citations

Abstract

One possible explanation for bidding firms earning positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less-developed capital markets Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially "unconstrained" buyers acquire "constrained" targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided companyspecific operational information, while the bidder provided capital-budgeting expertise.

Original languageEnglish (US)
Pages (from-to)1131-1152
Number of pages22
JournalJournal of Finance
Volume54
Issue number3
DOIs
StatePublished - Jun 1999
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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