| Summary: | Firms have long since engage in mergers and acquisitions for various reasons ranging from expansion to risk diversification. Bidding firms have not reported significant gains in stock prices in such investment strategies, which leads us to ponder why do they still engage in such. This paper aims to evaluate if merger bids create significant positive gains to the shareholders of bidding firm. From the examination of merger activities by Fortune 1000 firms, the results suggest that bidding firms gain significantly during the entire 41-day period during the merger announcements of their first four merger bids. Nonetheless, subsequent tests fail to support the hypothesis of merger programs and their capitalization effects. This paper also reports inadequate evidence on the subject of the relationship between relative size of merger partners and size of gains. The findings of this study may be further supplemented with the variant in reasons behind merger activities and their respective effect on stock prices, and drawing a time frame of three or four years to determine long-term effects of mergers.
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