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 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. Copyright 2011, Oxford University Press.
Year of publication: |
2011
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Authors: | Bernile, Gennaro ; Lyandres, Evgeny ; Zhdanov, Alexei |
Published in: |
Review of Finance. - European Finance Association - EFA, ISSN 1572-3097. - Vol. 16.2011, 2, p. 517-575
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Publisher: |
European Finance Association - EFA |
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