Purpose
– This paper aims to review the relevant literature on mergers and acquisitions in an attempt to provide a comprehensive account of what we know about mergers and which parts of the puzzle are still incomplete.
Design/methodology/approach
– This literature review consists of three key sections. The first part of this paper summarises the literature on the cyclical nature of mergers referred to in the literature as merger waves. The second section reviews the causes and consequences of takeovers; it first reviews the causes, or drivers, of acquisitions, while focusing on the fact that acquisitions happen in waves and then reviews the consequences of takeovers, with a predominant focus on the impacts of mergers on the economic performance of acquirers. The third part of the review summarises the theories as well as previous empirical studies on determinants of announcement returns and post-acquisition performance of combined firms.

Findings
– Merger activity demonstrates a wavy pattern, i.e. mergers are clustered in industries through time. The causes suggested for this fluctuating pattern include industry and economy-level shocks, mis-valuation and managerial herding. Market reaction to announcement of acquisitions is, on average, slightly negative for acquirer stocks and significantly positive for target stocks. The combined abnormal return is positive. These findings have been consistent over several decades of investigation. The prior research also identifies a number of factors that are related to performance of acquisitions. These factors are categorised and reviewed in five different groups: acquirer characteristics, target characteristics, bid characteristics, industry characteristics and macro-environment characteristics.
Originality/value
– This review illustrates a number of issues. Prior research is heavily biased towards gains to acquirers and factors that affect these gains. It is also biased towards finding sources of value creation through mergers, despite the fact that several theories suggest that mergers can be value-destroying. In fact, value destruction is often attributed to managers’ self-interest (agency problem) and mistakes (hubris). However, the mechanisms through which mergers destroy value are rarely addressed. Aside from that, the possibility of simultaneous creation and destruction of value in acquisitions is not often considered. Finally, after several decades of investigation, a key question is not completely answered yet: “What are the sources of value in mergers and acquisitions?”