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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