Valuation of mergers and acquisitions in the telecommunications industry: a study on diversification and firm size

Since the 1996 Telecommunications Act, numerous mergers and alliances (M&A) have been consummated within the telecommunications industry. These M&A in volve both large and small firms in a variety of different and similar indu stry segments. In this industry, replete with technological uncertainty, it is useful to evaluate the impact of these activities on the market valuati on of the firms involved. This study uses event analysis to examine 44 M&A events involving 89 partners in the telecommunications industry. Drawing on prior literature on diversification and firm size, the study formulates an d tests hypotheses relating the impact of near and far diversification, and the size of the firm, on market valuation. The results are mostly consiste nt with prior work and suggest that while overall these events weight posit ively on market value, M&A involving near-diversification and larger firms tend to experience greater valuation effects. (C) 2001 Elsevier Science B.V . All rights reserved.