Economic theory and merger behaviour

The purpose of the thesis was to seek a general explanation of merger activity. Methodology:
A multitude of explanatory theories existed and it was deemed
necessary to determine explicitly the criterion to be used in
developing a general theory of mergers. An analysis of major
categories of merger theory indicated that the analysis of motive is
essential to the provision of an adequate explanation.
The theory of the managerial firm was chosen for analysis since
it is both logically prior to market explanations and richer in
motivational possibilities.
Difficulties in testing a theory had been exposed by "growth of
knowledge" methodologists. It was decided to utilise the propositions
for theory testing and development proposed by Lakatos.
Two samples of firms were drawn: quoted companies engaged in the
supply of consumer goods from 1970 to 1978, and 100 firms engaged in
merger activity in 1978 or 1979 and a control group of 50 firms not
involved in mergers. Univariate statistical analysis, multiple
regression and discriminant analysis were then involved in determining
the financial and structural characteristics of firms with respect to
merger behaviour.
Findings
The claim by Lakatos that knowledge could be advanced in a
rational and progressive manner was not substantiated.
The view that growth and profit are opposing aims of the
managerial firm was rejected.
Takeover victims could not be identified with failing firms.
Shareholders do not benefit from increasing growth and profits
proportionately.
The theory of the managerial firm (distinguished from that
found in the literature) receives some support.
Shareholders seem more concerned with security than is
compatible with wealth maximisation theory.
Merger activity is best understood as a normal form of
investment activity.
The development of merger theory requires further analysis of
the growth strategies of firms in oligopolistic markets under
uncertainty.