Shareholders' valuation of merger/alliance-related events in the Canadian airline industry : 1991 to 1993
Date
1995
Authors
Aldridge, Derek William
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Abstract
Using an event study, we investigate the preferences of investors regarding the merger/alliance possibilities between Air Canada, Canadian Airlines (CAI), and American Airlines over the 1991-1993 period. We conclude that investors in both Canadian firms preferred an alliance between CAI and American to a merger between Air Canada and CAI. This, despite Air Canada management's pursuit of a merger with CAI. However, because Air Canada's shareholders did not strongly support CAI's foreign alliance after the possibility of a domestic merger was eliminated, we cannot conclude that investors preferred a domestic duopoly to a domestic monopoly. We also find strong evidence of agency costs: Air Canada's management did not act in the interests of their shareholders when they pursued a "made in Canada solution" through a merger with CAI.