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The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries

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  • Jianjun Miao

    (Boston University)

  • Dirk Hackbarth

    (Washington University)

Abstract

This paper develops a 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 industry shocks, (ii) the magnitude of returns arising from restructuring to both merger firms and rival firms is higher in more concentrated industries, (iii) increased product market competition delays the timing of mergers, (iv) when the industry is sufficiently concentrated, bidder competition induces a bid premium, and this premium decreases with product market competition.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 12.

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Date of creation: 2008
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Handle: RePEc:red:sed008:12

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