Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Returns in the Recent Merger Wave





    Search for more papers by this author
    • Moeller is at the Babcock Graduate School of Management, Wake Forest University; Schlingemann is at the Katz Graduate School of Business, University of Pittsburgh; and Stulz is at the Max M. Fisher College of Business, The Ohio State University, and the National Bureau of Economic Research. René Stulz is grateful for the hospitality of the Kellogg Graduate School of Management at Northwestern University and the George G. Stigler Center for the Study of the Economy and State at the University of Chicago where some of the work on this paper was performed. We are especially grateful to Harry DeAngelo, Linda DeAngelo, and David Hirshleifer for comments and discussions. We thank Asli Arikan, Rick Green, Jean Helwege, Michael Jensen, Andrew Karolyi, Henri Servaes, Andrei Shleifer, Mike Smith, Todd Pulvino, Ralph Walkling, seminar participants at the University of Kansas, Northwestern University, Ohio State University, and the NBER, and two anonymous referees for comments. Mehmet Yalin provided excellent research assistance.


Acquiring-firm shareholders lost 12 cents around acquisition announcements per dollar spent on acquisitions for a total loss of $240 billion from 1998 through 2001, whereas they lost $7 billion in all of the 1980s, or 1.6 cents per dollar spent. The 1998 to 2001 aggregate dollar loss of acquiring-firm shareholders is so large because of a small number of acquisitions with negative synergy gains by firms with extremely high valuations. Without these acquisitions, the wealth of acquiring-firm shareholders would have increased. Firms that make these acquisitions with large dollar losses perform poorly afterward.