Industry Effects On The Abnormal Returns To Acquiring Firms

Abstract

Jensen (1988) sketches some empirical predictions of the shareholder wealth effects of acquisitions in various industries. This study examines the acquisition rates, wealth effects, and subsequent rates of restructuring associated with acquisitions in these and other industries. The results show that the industries discussed by Jensen experience higher rates of acquisitions and subsequent restructuring and more significant wealth effects than other industries. The signs of the wealth effects are also consistent with Jensens predictions. Overall the findings provide some empirical support for the free cash flow theory. More detailed tests will be useful.