176 ISSN 1712-8056[Print] ISSN 1923-6697[Online] www.cscanada.net www.cscanada.org Canadian Social Science Vol. 9, No. 5, 2013, pp. 176-187 DOI:10.3968/j.css.1923669720130905.2839 Copyright © Canadian Academy of Oriental and Occidental Culture Mergers and Acquisitions: The Performance of the Acquiring Firm-Empirical Study of Cheverontexaco Emmanuel Opoku Marfo [a] ; Kwame Oduro Amoako [a] ; Evans Kelvin Gyau [a] [a] Lecturer. Accountancy Department, Sunyani Polytechnic, Ghana. * Corresponding author. Received 25 July 2013; accepted 12 October 2013 Abstract This paper analyzes a merger in the oil industry; in the case of Chevron and Texaco. Oil is assumed to be a homogeneous good which is produced by a small number of firms with different unit costs. Merger formation is endogenously explained as a result of cooperative decisions. It is shown that merger participants are very asymmetric if prior costs of production differences are moderate. If cost differences are large, however, the more efficient firms participate in the mergers to enjoy production efficiency, while the least efficient firms are not attractive partners and, therefore, remain independent in the post-merger market. Moreover, the research tries to investigate Chevron share returns if the merger has achieved its goal of maximizing shareholders wealth. Key words: ChevronTexaco; Merger formation; Oil industry Emmanuel Opoku Marfo, Kwame Oduro Amoako, Evans Kelvin Gyau (2013). Mergers and Acquisitions: The Performance of the Acquiring Firm-Empirical Study of Cheverontexaco. Canadian Social Science , 9 (5), 176-187. Available from: http://www.cscanada. net/index.php/css/article/view/j.css.1923669720130905.2839 DOI: http://dx.doi.org/10.3968/j.css.1923669720130905.2839. INTRODUCTION On October 16, 2000, Chevron announced plans to acquire Texaco. The merger was subsequently approved by the Chevron shareholders. This is somewhat unsettling why would the shareholders of Chevron agree to lose almost 10% on their holdings, especially given that the largest shareholders control almost a quarter of the company voting stock? This example, while striking, is by no means an exception many studies show that average returns to acquiring-firm shareholders are negative, or at best slightly positive, while average returns to target-firm shareholders are positive and high, when both companies are publicly traded. Moeller, Schlingemann, and Stulz, (2005). The general consensus among those in the field of finance is that the principal goal of a firm should be the maximisation of stockholder’s wealth. Management of firms therefore strives to ensure that all major decisions taken are geared towards achieving this all-important goal. This goal is achieved by ensuring that the resources of the firm are efficiently employed. Few companies enjoy the luxury of having no serious competitors or little likelihood of any need to change their competitive strategy. It is therefore essential for companies to look for opportunities to create – and sustain – a competitive edge over their rivals and build customer loyalty that provides something of a comfort zone. Thus, businesses operating in today’s highly competitive, uncertain and rapidly changing world continue to change in reaction to events such as moves by the competition, shifts in technology or new customer demands. Nothing appears so compelling as the need to survive. However, there is little doubt as to how, overwhelmingly, this choice is exercised: it is to achieve the greatest possible rate of corporate growth as measured in sales. Few business people today need to be persuaded that firms should be growth-oriented. The firm that does not attempt to grow, it is argued, is likely not merely to stand still but to stagnate and die. The firm’s current ownership and management should not be taken for granted. If it is possible for the value of the firm to be enhanced by changing management or by reorganizing under new owners, there will be incentives for someone to make a change. One of the ways through which the value of the firm could be enhanced through change of management is