A longitudinal analysis of mergers and acquistions as homogenous groups

Many previous research efforts in finance have dealt with the issue of merger motives. In these studies, which were empirical in nature, data collection procedures were not designed to accommodate the analysis of intra-firm merger relationships. As a result of this, researchers were not able to determine if mergers over a multi-year period for an individual firm were related. The purpose of this study is to: (1) collect and analyze information which can be used to establish and evaluate longitudinal intra-firm merger relationships, and (2) evaluate the impact of these relationships on firms' financial performance via relevant measures of risk and return.

Data were collected on 295 mergers consummated between 1960 and 1978. Factor analysis was used to reduce the number of variables from 57 to 18 using Principal Components Analysis and Image extraction methods along with Varimax rotation procedures. All 295 mergers were clustered together using the 18 variables from factor analysis and 16 additional variables which were used to enhance development of cluster descriptions. Hypergeometric probability calculations were used to identify acquiring firms with unusual merger distribution patterns across clusters developed. Performance comparisons were then done between acquiring firms with three mergers, those with four or more mergers but no unusual merger distribution patterns, and those acquiring firms with four or more mergers and unusual merger patterns.

Results showed that 38 percent of the firms analyzed had merger distribution patterns with less than a 5 percent probability of occurring by chance. Chi square tests were used to show that such a high proportion of firms with unusual merger distributions had less than a .01% probability of occurring by chance alone. Therefore, in the sample studied, an unusually large number of firms did show unlikely merger patterns. No significant performance differences were detected between any of the sub-groups analyzed.