The impact of takeovers on shareholder wealth during the 1920s merger wave

We examine the impact of merger announcements on portfolios of acquiring firm and target firm common stock from 1919 to 1930. Despite vast changes in the economic and regulatory environment, overall acquisition profitability has remained remarkably constant over the last 70 to 80 years. Target firm shareholders in the 1920s clearly gained from takeovers, averaging abnormal returns in excess of 15%, while acquiring firm shareholders essentially broke even. Synergistic or monopolistic gains from consolidation were minimal. Unlike the more recent experience, target firm and acquiring firm abnormal returns were largely unaffected by the mode of acquisition, the means of financing, or the degree of industrial relatedness.