Mergers and the Market for Corporate Control: The Canadian Evidence

The proposition that a competitive market for corporate control effectively limits managerial divergence from shareholder wealth maximization implies that corporate takeovers are beneficial to shareholders of both firms involved in the transaction. This paper presents the first systematic large-sample study of the valuation effects of Canadian mergers and concludes that these investments indeed create significant gains to shareholders of both bidder and target firms. This evidence, which is particularly interesting in light of extant evidence on the performance of u.s. bidder firms, indicates that the Canadian market for corporate control plays an important role in promoting an optimal resource allocation.