ctivities of the separate firms involved, appeared to characterize most of the corporate acquisition, merger, and consolidation activity of the 1980s.4
Regardless of the strategic goals involved, merger and acquisition activity usually results in some degree of corpor ate diversification. This result was particularly characteris tic of most mergers and acquisitions in the 1980s, where the principal business activities of target firms, more often than
3W. F. Glueck, Business Policy and Strategic Management, 5th ed. (New York: McGraw Hill Book Company, 1989), 274.
4J. Smith, "Merger Poppycock," Financial World, 19 April 1988, 4.
not appeared to have little in common with those of the raiding firms.5
Serious questions have been raised concerning the adverse effects which may stem from LBOs, in which the meshing of the principal business activities of the merger partners appears to have either a low or no priority.6 Within the framework of this problem area, this research study investigated the follow ing research question:
What effect does merger accomplished through an LBO structure have on the operating efficiency (profitability) of the surviving firm in comparison with the pre merger operating efficiency of the firms involved in the merger?
Diversification has long been recognized as a desirable goal for both firms and investors.7 In this context, diversi fication is viewed as a viable means of reducing risk in a var iety of contexts.8 A cursory consideration of diversifica tion attained through corporate acquisition, merger, and
__________ 5J. Brooks, The Takeover Game (New York: Harper & Row, Publishers, 1987), 11.
6D. Bandow, "Are Hostile Takeovers Good for the Economy?" Business and Society Review, Fall 1987, 45 49.
7R. I. Robinson, and D. Wrightsman, Financial Markets: The Accumulation and Allocation of Wealth, 4th ed. (New York: McGraw Hill Book Company, 1989), 106.
8R. Brealey,...