A reexamination of the conglomerate merger wave in the 1960s: An internal capital markets view

One possible explanation for bidding firms earning positive abnormal return s in diversifying acquisitions in the 1960s is that internal capital market s were expected to overcome the information deficiencies of the less-develo ped capital markets. Examining 392 bidder firms during the 1960s, we find t he highest bidder returns when financially "unconstrained" buyers acquire " constrained" targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external fin ancing. We also find that bidders generally retain target management, sugge sting that management may have provided company-specific operational inform ation, while the bidder provided capital-budgeting expertise.