Chevalier.

Using a sample of firms that undertook diversifying mergers between 1980 and 1995, Chevalier examines the investment behavior of these firms prior to their mergers. She shows that the investment patterns attributed in the literature to "cross-subsidization between divisions" are apparent in the pairs of merging firms prior to their mergers. Thus some of the cross-subsidization results in the literature may be attributable to selection bias. Chevalier also examines stock market responses to the announcement of diversifying acquisitions. The market believes that these acquisitions will create value. The event response to the merger is largely independent of measures of the extent to which the merger is diversifying, she finds.