Show Less
Restricted access

Value Creation of Corporate Restructuring

A Market Cycle and Industry View


Ulrich Erxleben

The study offers a contribution to the debate about shareholder wealth creation following corporate restructuring transactions. Including market cycle and industry factors, it provides an analysis of merger and acquisition (M&A) and corporate divestiture success between 1989 and 2008 in Europe. The first part of the study focuses on effects of market valuation levels and market cycles on the value creation potential of corporate restructuring. The second part discusses mergers and acquisitions and divestment success from an industry perspective. The results provide surprising insights into drivers of shareholder value creation.
Show Summary Details
Restricted access

4. Wealth Creation of Mergers in Downturn Markets


4.  Wealth Creation of Mergers in Downturn Markets

4.1  Introduction

Empirical evidence shows a positive relation between merger and acquisition (M&A) activity and market valuation level (Mitchell and Mulherin 1996, Lambrecht 2004, Jovanovic and Rousseau 2008). The experience of the last two decades strongly supports this view. The amount and volume of M&A have reached the highest levels in history during the boom years of 1998/99 and 2006/07. With the collapse of stock markets in 2001 and 2008, M&A activity also declined steeply compared to the last year of the stock market boom: -58% (2001) and -55% (2008) measured by total transaction value and -35% (2001) and -32% (2008) by number of transactions.6

Less evident is the value effect of acquisitions in strong and weak markets for acquirers’ shareholders. Merger waves in booming stock markets are often considered rational reactions to industry shocks caused by new technologies, changes in factor costs or deregulation. Using M&A to encounter such changes and to quickly adapt to a new market situation can be value creating (Mitchell and Mulherin 1996, Harford 2005). However, a growing body of literature argues from a behavioral perspective that boom markets rather generate agency costs instead of shareholder value. In this view, high valuations in strong markets lead managers to pursue transactions motivated by self-interest that reduce firm value (Jensen 2005, Gorton et. al 2009, Goel and Thakor 2010). Some recent takeovers provide anecdotal evidence...

You are not authenticated to view the full text of this chapter or article.

This site requires a subscription or purchase to access the full text of books or journals.

Do you have any questions? Contact us.

Or login to access all content.