| Mergers and acquisitions are an important economic activity, yet extensive research has shown that acquirers experience, on average, non-positive returns as a result of acquisitions. I address this paradox by differentiating among mergers on the basis of the motives underlying each acquisition. Using merger motives to partition the sample of acquisitions, I distinguish between value-enhancing mergers (conjectured as motivated by synergy) and value-reducing mergers (inferred as motivated by agency). These two merger sub-samples are then analyzed to study the long-term performance of the firms in each group. Results indicate that synergy-motivated acquisitions outperform agency-motivated acquisitions up to three years following the acquisition. Furthermore, I find that the best indicator of the motive for the acquisition is achieved by using a combination of the stock market reaction to the acquisition announcement and ex-ante accounting information. |
