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Do horizontal mergers affect rivals’ cash holdings?

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  • Hu, Xiaoxue
  • Li, Dongxu

Abstract

This paper examines how firms adjust cash holdings following horizontal mergers in the industry. Using a sample of 16,597 horizontal mergers between US firms from 1984 to 2016, we find that in the three-year period following horizontal mergers, the marginal value of cash decreases for the rivals with lower investment opportunities. Rivals with low Tobin's Q reduce cash while the rivals with high Tobin's Q hold more cash. These results suggest that rival firms adjust cash holdings in a pattern that is more consistent with their investment opportunities. We also examine possible explanations for the rivals' cash adjustments and discuss the rivals' competitive pressure following the horizontal mergers.

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  • Hu, Xiaoxue & Li, Dongxu, 2022. "Do horizontal mergers affect rivals’ cash holdings?," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 275-298.
    • Handle: RePEc:eee:reveco:v:82:y:2022:i:c:p:275-298
    DOI: 10.1016/j.iref.2022.06.011
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    More about this item

    Keywords

    Horizontal merger; Cash; Investment opportunity; Industry competition;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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