Date of Award

Summer 2007

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

Kenneth Yung

Committee Member

Mohammad Najand

Committee Member

David Selover


This study seeks to decipher the motives of mergers and acquisitions and identify the source of value creation or destruction. The existing literature on corporate mergers and acquisitions generally agrees on four primary motives of merger and acquisition decisions: (1) market timing, (2) response to industry shocks, (3) agency cost and hubris, and (4) synergy. In studying the motives behind acquisition decisions, prior studies have used incomparable methodologies and measures, which often lead to inconclusive debates. In this study, we address the possibility that there could be multiple motives behind a merger. Instead of using a multitude of methodologies to look for the existence of different motives of acquisitions, we use a single methodology that allows us to identify the motives simultaneously. Specifically, we examine components of the market-to-book ratio and correlate them with the motives of merger activity. By observing the changes in the components of the market-to-book ratio over long-run event windows after the merger, we are able to verify ex post the motives behind a merger and identify the source of value creation or destruction. Using a sample of 3,520 domestic merger events over a twenty-year period from 1985 to 2004, we find significant evidence supporting that market timing, response to industry-shocks, and synergy could be simultaneous motives for some mergers. Stock mergers appear to be more related to the market timing motive than cash mergers as the improvements in post-merger operating performance of stock mergers less consistent than those of cash mergers. A decline in sales growth also suggests that many mergers may be driven by agency problems or hubris. It is likely that managers use overvalued common stocks to satisfy their personal interests through corporate mergers. On average, we also find that large acquirers and large acquisitions are more associated with market timing and agency problems and hubris.


In Copyright. URI: This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s).