Mergers and risk
By: Craig H. Furfine, Richard J. Rosen.
Contributors: Rosen, Richard Joseph.; Federal Reserve Bank of Chicago. Research Dept.
Series: Working paper series -- WP-2006-09; Working paper series (Federal Reserve Bank of Chicago. Research Dept. : Online) -- WP-2006-09.
Publisher: Federal Reserve Bank of Chicago
Published: 2006
Place of publication: [Chicago, Ill.]
Language: eng
Format: Electronic resource
Subjects: Consolidation and merger of corporations.; Risk management.
Description: "This paper examines the impact of mergers on default risk, finding that, on average, a merger increases the default risk of the acquiring firm.  This is surprising for two reasons: risk reduction is among the reasons commonly cited for mergers, and asset diversification should reduce default risk unless the newly-merged firm takes some action to increase risk.  We associate the risk increase with mergers satisfying one of a trifecta of conditions related to agency problems: mergers financed with stock, acquirers with a high market- to-book ratio, and acquirers with poor stock price performance prior to a merger announcement.  We also demonstrate higher levels of default risk are not accompanied by higher post- merger returns"--Federal Reserve Bank of Chicago web site.
Notes: Title from PDF file as viewed on 11/13/2006.

Includes bibliographical references.

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