FEAR OF MISSING OUT � THE HIDDEN VALUE OF INACTION IN MERGER AND ACQUISITION ACTIVITY

Announcements of mergers and acquisitions (M&A), especially by well-known companies, are very often media attention grabbers.Despite the buzz generated, however, numerous studies have shown that most M&A activity results in value destruction for long term investors.Researchers have noted this loss of value but have been limited in their conclusions because they could not show that mergers were inferior value sources when compared to inaction (not merging/acquiring).This inaction could potentially be more value destructive than merger activity.Thus, this study investigates whether there is a penalty or benefit to inaction relative to M&A activity.The results of this study show an average non-merger (inaction) premium of 57% over expected market returns over five years.This study also finds that, on average, M&A activity is value destructive, and inactivity is value accretive.In general, it could be said that mergers are detrimental to value and inaction is preferred, but inaction bears its own risks.