Journal of Economics and Management  
  In Press, Corrected Proof  
  Available online 25 January 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 classification: M14, G32, G34

 

 
   

 

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