Chapter 5. The Evidence on Mergers and Acquisitions: A Historical and Modern Report

We review historical and current research on mergers and acquisitions. The literature is extensive. After a discussion of earlier survey articles (our “survey of the surveys”), we provide a review of more than 120 M&A related-articles published in leading finance journals since 2011. A basic important finding in the early M&A literature is that, on average, M&A activity creates wealth. Following this finding, researchers in the 1980s through 2000s studied how the process and the parties in the deals worked, the motivations for M&A, and the sources of the wealth gain. We note that much of the recent work represents straight-forward extensions of earlier research, such as the impact of characteristics of the board of directors on acquiring firm stock returns, but there is also much that is new. For example, the availability of new executive databases has led to research that has been key to understanding the importance of networking and relationships in M&A. Changes in globalization and better understanding of cross-country cultural, political and economic differences has led to using new international databases to test the international generality of relations observed in the US and to examine the factors that come into play in cross-border acquisitions. Importantly, we provide perspective on the historical development of the study of M&A, offer caveats to remember when interpreting the research of others or designing one's own research and note the importance of incrementalism in our overall understanding of the value of research in M&A.