Diversifying Mergers and Risk: Some Empirical Tests

Abstract

This article examines the impact of substantial mergers on systematic risk — market model beta — estimates for a sample of large UK companies. Unlike the previous US studies in the area, the paper then relates the change in beta to a measure of the extent of diversification present in the acquisition. It is found that diversifying mergers did not decrease risk and, indeed, increased it on average. Furthermore, diversifying mergers did have a significantly greater impact on risk than non‐diversifying mergers.

Citation

Thompson, R.S. (1983), "Diversifying Mergers and Risk: Some Empirical Tests", Journal of Economic Studies, Vol. 10 No. 3, pp. 12-21. https://doi.org/10.1108/eb002561