The Impact of Takeovers on ShareholderWealth during the 1920s Merger Wave

Abstract

We examine the impact of merger announcements onprotfolios of acquiring firm and target firm commonstock from 1919 to 1930. despite vast changes in theeconomic and regulatory environment, overallacquisition profitability has remained remarkablyconstant over the last 70 and 80 years. Target firmshareholders in the 1920s clearly gained fromtakeovers, averaging abnormal retruns in excess of15%, while acquiring firm shareholders essentiallybroke even. synergistic or monopolistic gains fromconsolidation were minimal. Unlike the more recentexperience, target firm and acquiring firm abnormalreturns were largely unaffected by the mode ofacquisition, the means of financing, or the degreeof industrial relatedness.