| In mergers and acquisitions (M&A), the acquiring firm uses synergy as the explanation for paying the present market value of a firm plus a premium. Empirically, synergy has eluded capture by business and has challenged academia to measure it with consistent results. With almost two trillion dollars annually allocated to the purchase of U.S. firms, a more detailed understanding and measurement of synergy (a proxy for value) has become critical.; Contemporary event studies measure synergy using market-adjusted abnormal returns for mergers and acquisitions across the entire marketplace. However, scholars have suggested that the use of large samples has led to conflicting conclusions. This study narrows the sample universe from the market to an individual industry and examines 53 mergers and acquisitions in the aerospace and defense industry. In addition to market-adjusted returns, this study measures synergy using industry-adjusted abnormal returns to ascertain the value change during the ex-ante and two-year ex-post time period. Also, six contemporary variables are examined for impact on the capture of synergy.; The study results support contemporary findings of negative abnormal returns (market-adjusted losses) to the acquiring firms' stockholders in both the ex-ante and expost periods. However, the industry-adjusted results show the acquiring firm's stockholders achieve returns consistent with the aerospace and defense industry. Traditional accounting measures indicate firm performance declines over the two-year ex-post period. This implies that the possible selection of accounting measures does not hide poor post M&A performance. Related firms performed worse than unrelated firms, refuting relatedness as a value enhancement. The possible management, investor, academic, and policy implications of these findings are discussed. |
