AbstractRecent work has suggested that mergers or acquisitions between strategically related firms will generate abnormal returns for shareholders of bidding firms. Empirical evidence on this hypothesis has been mixed. The relatedness hypothesis is refined by arguing that relatedness is not a sufficient condition for acquiring firms to earn abnormal returns. Rather, only when bidding firms enjoy private and uniquely valuable synergistic cash flows with targets, inimitable and uniquely valuable synergistic cash flows with targets, or unexpected synergistic cash flows, will acquiring a related firm result in abnormal returns for the shareholders of bidding firms.