An Efficiency Perspective on the Gains from Mergers and Asset Purchases

A rational, efficiency-based view of acquisitions imply that larger transactions generate greater gains for the acquirer and the seller. We test this prediction and find a positive relationship between acquirer abnormal returns and transaction size. This relationship holds for many classes of acquisitions, including asset purchases and mergers that target private firms. We find a similar relationship between total acquirer and seller abnormal returns and transaction size. The results suggest that, in general, acquisitions help shift capital to more productive owners. Furthermore, we present evidence demonstrating that the average acquirer captures a significant portion of the total gains generated from an acquisition