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Mergers and acquisitions theory still lacks a comprehensive understanding and organization to formulate a general theory for support and for relating it to other economic and administrative theories. The article contributes to this better understanding and to how this may be approached empirically. Some intrinsic theoretical aspects of mergers and acquisitions are described together with basic premises and underlying reasons. Economic and financial literature is used to develop empirical hypotheses whose results are analyzed. Evidence suggests that mergers and acquisitions seek to maximize shareholders’ participation as well as to provide peak managerial effectiveness and may or may not include synergism. New information disclosed to the market as well as interpretations on the part of the investors generate abnormally high returns. The larger companies receive most of the profits and investors manage to obtain returns equal or greater than those of the combined (diversified) companies by, in a suitable proportion, investing in the stock of the separate companies.
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