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Value Creation of Corporate Restructuring

A Market Cycle and Industry View

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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.
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6. Industry Characteristics and M&A Value Creation

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6.  Industry Characteristics and M&A Value Creation

6.1  Introduction

Motivation for merger and acquisitions (M&A) is frequently discussed in corporate finance research. Companies acquire to realize operational synergies, gain market power, replace ineffective management, reduce market capacity, or seek financial synergies (Jensen and Ruback 1983, Morck at al. 1990). Behavioral explanations of activity add empire building, envy, and herding of managers to this list of possible reasons for M&A (Roll 1986, Goel and Thakor 2010, Bouwman et al. 2009). Motivations can depend on idiosyncratic company factors such as strategy, technology, asset productivity, and management. They are, however, also influenced by market and industry factors that determine growth and productivity prospects of the firm. Previous studies propose an important role of industry and market factors on M&A activity. Empirical evidence shows that M&A clusters in time and across industries. Numerous studies have examined the determinants of these differences in takeover activity from a market and industry perspective. The results propose that changes in industry fundamentals best explain increases in M&A activity (Mitchell and Mulherin 1996, Andrade et al. 2001, Harford 2005). Significant effects have been found, e.g., from changes in demand, variations in R&D investment requirements, new production technologies, and changes in factor costs. Companies react to these industry specific shocks with expansionary or contractory corporate restructuring. The motivation to engage in M&A can, thus, be induced by industry determinants and...

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