This thesis examines the performance of 40 mergers completed from 1994 to 2001 in Korea, using not only short-horizon event study based on the market model method but also a long term performance measure based on the operating cash flow. The results indicate that merger leads significant improvement in operating cash flow return as well as a positive abnormal return of acquiring and target firm. There is a strong positive relation between abnormal operating cash flow return after merger and abnormal stock return at merger announcements. It means that expectations of economic improvements underlie the equity revaluation of merger firms. This study also examines if the mergers between affiliated firms of Chaebols show the better performance.
These mergers lead the higher abnormal operating cash flow return than the others, even though showing lower abnormal stock return at merger announcements. It means that internal capital market and other advantages of Chaebols improve long term investment efficiency but the characteristics of Chaebols have a negative influence on investor's evaluation.
