Essays in Honour of Keith Cowling
Edited by Michael Waterson
Chapter 9: The Finance Literature on Mergers: A Critical Survey
9. The ﬁnance literature on mergers: a critical survey1 Dennis C. Mueller Among the many important pieces of research by Keith Cowling is a coauthored book of case studies of UK mergers (Cowling et al., 1979). In that book Cowling and associates established that mergers and acquisitions (hereafter M&As)2 can not only result in increases in eﬃciency and market power, they can also lead to less eﬃcient enterprises. M&As that fall into the ﬁrst two categories are consistent with the premise that managers maximise proﬁts or shareholder wealth. M&As falling into the third category must be explained by theories that posit other managerial goals than proﬁts, for example ﬁrm growth, or quasi-irrational behaviour as might occur because managers are overcome by hubris. From the point of view of the theory of the ﬁrm, the important question about M&As is whether they are best explained by a hypothesis from the third category, or by one that presumes proﬁts maximisation. If most M&As are consistent with proﬁts maximisation, then corporate governance structures can be assumed to align shareholder and managerial interests. If, on the other hand, a large fraction do not increase shareholder wealth, corporate governance structures must fail to bring about such an alignment. To measure the social value of M&As, one must also distinguish between the ﬁrst two sets of hypotheses. Only M&As that increase eﬃciency, broadly deﬁned, have a positive impact on social...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.