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The Dynamics of Mergers and Acquisitions in Oligopolistic Industries

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Author Info

  • Dirk Hackbarth

    ()
    (Department of Finance, Olin School of Business, Washington University in St. Louis)

  • Jianjun Maio

    ()
    (Department of Economics, Boston University and Department of Finance, the Hong Kong University of Science and Technology)

Abstract

This paper develops a continuous time real options model to study the interaction between industry structure and takeover activity. In an asymmetric industry equilibrium, firms have an endogenous incentive to merge when restructuring decisions are motivated by operating and strategic benefits. The model predicts that (i) the likelihood of restructuring activities is greater in more concentrated industries or in industries that are more exposed to exogenous shocks; and (ii) the magnitude of returns arising from restructuring to both merger firms and rival firms are higher in more concentrated industries. While recent real options models contend that competition erodes the option value of waiting and hence accelerates the timing of mergers, in our model, increased competition delays the timing of mergers.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2007-017.

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Length: 32pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:bos:wpaper:wp2007-017

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Keywords: industry structure; anticompetitive effect; real options; takeovers.;

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References

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Citations

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Cited by:
  1. Almeida, Heitor & Campello, Murillo & Hackbarth, Dirk, 2011. "Liquidity mergers," Journal of Financial Economics, Elsevier, vol. 102(3), pages 526-558.
  2. García-Feijóo, Luis & Madura, Jeff & Ngo, Thanh, 2012. "Impact of industry characteristics on the method of payment in mergers," Journal of Economics and Business, Elsevier, vol. 64(4), pages 261-274.
  3. Marc-Andreas Muendler, 2013. "Export or Merge? Proximity vs. Concentration in Product Space," NBER Working Papers 19751, National Bureau of Economic Research, Inc.
  4. Andrey Malenko & Alexander Gorbenko, 2013. "Means of payment and timing of mergers and acquisitions in a dynamic economy," 2013 Meeting Papers 928, Society for Economic Dynamics.
  5. Lukas, Elmar & Welling, Andreas, 2014. "On the investment–uncertainty relationship: A game theoretic real option approach," Finance Research Letters, Elsevier, vol. 11(1), pages 25-35.
  6. Strebulaev, Ilya A. & Whited, Toni M., 2012. "Dynamic Models and Structural Estimation in Corporate Finance," Foundations and Trends(R) in Finance, now publishers, vol. 6(1–2), pages 1-163, November.
  7. repec:cge:warwcg:179 is not listed on IDEAS
  8. Habib, Michel A. & Mella-Barral, Pierre, 2013. "Skills, core capabilities, and the choice between merging, allying, and trading assets," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 31-48.

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