Market Perception of Synergies in Related Acquisitions‪.‬

INTRODUCTION Unlike the mergers and acquisitions (M&A) era of the 1970s and 1980s where the predominant motives for acquisitions were hubris, empire building, market power, and agency (Jensen, 1991; Roll, 1986; Trautwein, 1990), an increasing number of acquisitions in the 1990s, and in this decade, have been purportedly undertaken for synergistic reasons (Hitt, Harrison, & Ireland, 2001). Synergy has been defined in various ways such as, utilization of the resources that creates value for the combined entity (Chatterjee, 1986), as "valuation of a combination of business units which exceeds the sum of valuations for stand alone units" (Davis & Thomas, 1993: 1334), and as "increases in competitiveness and resulting cash flows beyond what the two companies are expected to accomplish independently" (Sirower, 1997). The synergy motive for acquisitions states that by combining the resources of the two firms, economies of scale and scope are created, which in turn, creates value for the combined entity (Slusky & Caves, 1991).