AbstractAcquisition literature suggests a relationship between stockholder gains and the relatedness of merging firms. This notion is tested by classifying mergers into four relatedness categories and by using measures of stockholder value as developed in the literature on capital markets. In all, stock returns of 439 acquiring firms in 1031 large mergers are examined, as are stock returns of 340 large acquired firms. The findings show that mergers lead to permanent gains in stockholder value for both acquiring and acquired firms' stockholders, but they do not support the popular prescription: ‘All things being equal, some product and market relatedness is better than none