Journal of Economics and Management Volume 15, No. 1 February, 2019 |
Impact of Diversified Mergers and Acquisitions on Corporate Risk |
Chu-Hua Wu |
College of Management, Yuan Ze University, Taiwan. |
Hao-En Chiang |
College of Management, Yuan Ze University, Taiwan. |
Abstract |
This study uses two indices, namely the entropy index and Herfindahl–Hirschman index (HHI), to measure whether the degree of diversification of an organization significantly changes the total and systematic risk after mergers and acquisitions (M&A). The standard deviation of return on assets (ROA) is used to measure the total corporate risk, and the beta coefficient is used to evaluate the systematic risk. The results indicate that an increasing degree of diversification after M&A can effectively reduce ROA volatility; more specifically, related M&A reduce ROA volatility, whereas unrelated M&A reduced beta. When a sample is divided into two groups based on corporate characteristics, organizations with a larger size, higher research and development intensity, superior financial slack, superior performance, and lower leverage ratio reduce more volatility than those in the other group. |
Keywords:Diversification, Mergers, Acquisitions, Corporate Risk. |
JEL Classifications:M14, G32, G34. |
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