Effect Of Mergers And Acquisitions On Stockholders And The Economy

Timothy J. Parker

This study is now available at http://commons.und.edu/theses/4396


The size and volume of takeover activity has increased astronomically since the frenzy of current takeover activity began with the 1974 raid on ESB, Inc. in Philadelphia. Since then we have witnessed the growth of the raider financing tool: the junk bond. This high yield but incredibly risky bond has helped finance some of the largest mergers and acquisitions in history. The risk has not driven away investors looking for substantial fast earnings. The demand for these so called bellow-investment-grade bonds continue to grow.

Are these bonds causing companies to take on too much debt to finance takeovers? Does this frenzy of takeover activity do more harm than good to shareholders, employees, the capital markets, and the economy as a whole?

From the research I have done, I have determined that there are no hard and fast rules to provide the answer to these questions. There is little concrete proof that mergers and acquisitions are good or bad. Some mergers and acquisitions will be beneficial, others will not. To find the answer, you must evaluate the effects on a company by company basis.