ETRI Journal

Electronics and Telecommunications Research Institute (한국전자통신연구원)
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Mergers and Acquisitions in the Telecommunications Industry: Myths and Reality

  • Park, Myeong-Cheol (School of Management Information and Communications University (ICU)) ;
  • Yang, Dong-Hoon (School of Management Information and Communications University (ICU)) ;
  • Nam, Chan-Gi (School of Management Information and Communications University (ICU)) ;
  • Ha, Young-Wook (Technology Valuation Center, Electronics and Telecommunications Research Institute (ETRI))
  • Received : 2001.07.02
  • Published : 2002.02.28
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Abstract

This paper investigates how market participants react to mergers and acquisitions (M&As) involving telecommunications companies. The empirical evidence suggests that such activities convey bad news to the market. This is consistent with the synergy trap hypothesis and extant empirical findings of value-reducing diversification strategies in recent literature. The evidence also indicates that a cross-border, rather than a domestic M&A deal, is the main driver of the negative market reaction. Further, our evidence of negative impacts on the bidder's business after an M&A reinforces our main finding that market participants, on average, perceive M&A activities to be detrimental to shareholder value. This suggests that value creation or synergy through an M&A deal is not warranted even though it can generate an increase in size of the firm.

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References

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