Is economic efficiency the driving force behind mergers?

Some economists routinely argue against government regulation that limits the number of mergers and acquisitions. They believe that, as a matter of empirical fact, almost all mergers enhance economic efficiency. The possibility that some mergers do not create wealth but merely redistribute it is ignored. We study all companies delisted from the New York Stock Exchange for reason of merger since 1926. We find that economic efficiency cannot easily explain merger waves. Contrary to the disciplinary hypothesis, acquisition targets are not, in large majority, poor stock market performers. We also report evidence consistent with stock market undervaluation as a merger motive.