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The timing of mergers along the production chain, capital structure, and risk dynamics

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  • Tarsalewska, Monika

Abstract

I demonstrate that the timing of vertical mergers is generally dependent on industry characteristics. My predictions are consistent with empirically observed patterns of vertical mergers. I show that merger activity during economic upturns tends to be motivated by operating efficiencies, while merger activity during economic downturns tends to occur as a means of keeping production chain operational. Mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions. The pricing framework implies that a vertical merger decision usually reduces risk during two different economic states.

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  • Tarsalewska, Monika, 2015. "The timing of mergers along the production chain, capital structure, and risk dynamics," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 51-64.
    • Handle: RePEc:eee:jbfina:v:57:y:2015:i:c:p:51-64
    DOI: 10.1016/j.jbankfin.2015.03.014
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    Cited by:

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    More about this item

    Keywords

    Vertical mergers; Real options; Risk;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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