Valuation of mergers and acquisitions in the telecommunications industry: a study on diversification and firm size

Since the 1996 Telecommunications Act, numerous mergers and alliances (M&A) have been consummated within the telecommunications industry. These M&A involve both large and small firms in a variety of different and similar industry segments. In this industry, replete with technological uncertainty, it is useful to evaluate the impact of these activities on the market valuation of the firms involved. This study uses event analysis to examine 44 M&A events involving 89 partners in the telecommunications industry. Drawing on prior literature on diversification and firm size, the study formulates and tests hypotheses relating the impact of near and far diversification, and the size of the firm, on market valuation. The results are mostly consistent with prior work and suggest that while overall these events weight positively on market value, M&A involving near-diversification and larger firms tend to experience greater valuation effects.