A Theory of Strategic Mergers
We examine firms’ strategic incentives to engage in horizontal mergers. In a real options framework, we show that strategic considerations may explain abnormally high takeover activity during periods of positive and negative demand shocks. Importantly, this pattern emerges solely as a result of firm...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
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Institutional Knowledge at Singapore Management University
2012
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/lkcsb_research/3663 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4662/viewcontent/SSRN_id891311.pdf |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | We examine firms’ strategic incentives to engage in horizontal mergers. In a real options framework, we show that strategic considerations may explain abnormally high takeover activity during periods of positive and negative demand shocks. Importantly, this pattern emerges solely as a result of firms’ strategic interaction in output markets. We show that the U-shaped relation between the state of demand and the propensity of firms to merge, documented in past studies, is driven by horizontal mergers in industries that are: (1) relatively more concentrated, (2) characterized by relatively strong competitive interaction among firms, and (3) characterized by relatively low merger-related operating synergies and restructuring costs. The empirical evidence, based on parametric and semi-parametric regression analyses, is consistent with these predictions. |
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