Abstract: This paper makes two contributions to the literature examining the effects of mergers on firms’ product market rivals, customers, and suppliers. We provide the first analysis of the effect of horizontal merger synergies along the supply chain, by utilizing a novel, hand-collected dataset of insiders’ projections of synergies. We find that synergies are an important determinant of the market reactions by product market rivals, customers, and suppliers of merging firms to horizontal merger announcements. Second, we revisit the empirical literature examining the market power (collusion) motive for horizontal mergers by demonstrating theoretically that omitting a measure of synergies, as in past studies, may lead to biased inferences regarding the effects of market power along the supply chain. Our tests of the market power hypothesis, which account for merger synergies, demonstrate that post-merger changes in industry structure are often significantly related to announcement returns to rivals, customers, and suppliers of merging firms. This result stands in sharp contrast with past studies, which generally report inconclusive evidence regarding the effects of market power along the supply chain.
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 7
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