IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v47y2012i01p57-89_00.html
   My bibliography  Save this article

Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry

Author

Listed:
  • Becher, David A.
  • Mulherin, J. Harold
  • Walkling, Ralph A.

Abstract

Our work provides refined tests of the source of merger gains in a neglected industry: utilities. Utilities offer fertile ground for analysis of traditional theories: synergy, collusion, hubris, and anticipation. Utility mergers create wealth for the combined firm, consistent with both the synergy and collusion hypotheses. To distinguish between these hypotheses, we study rival stock returns across dimensions related to collusion: deregulation, geography, and horizontal and withdrawn deals. We also find that the impact of mergers on consumer prices is consistent with synergy rather than collusion. Analysis of industry rivals that become targets also rejects collusion and is consistent with anticipation.

Suggested Citation

  • Becher, David A. & Mulherin, J. Harold & Walkling, Ralph A., 2012. "Sources of Gains in Corporate Mergers: Refined Tests from a Neglected Industry," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(01), pages 57-89, April.
  • Handle: RePEc:cup:jfinqa:v:47:y:2012:i:01:p:57-89_00
    as

    Download full text from publisher

    File URL: http://journals.cambridge.org/abstract_S0022109012000026
    File Function: link to article abstract page
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    2. Bekaert, Geert & Hodrick, Robert J. & Marshall, David A., 1997. "On biases in tests of the expectations hypothesis of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 44(3), pages 309-348, June.
    3. Gupta, Anurag & Subrahmanyam, Marti G., 2000. "An empirical examination of the convexity bias in the pricing of interest rate swaps," Journal of Financial Economics, Elsevier, pages 239-279.
    4. Pennacchi, George G, 1991. "Identifying the Dynamics of Real Interest Rates and Inflation: Evidence Using Survey Data," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 53-86.
    5. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    6. Timothy Cogley & Thomas J. Sargent, 2002. "Evolving Post-World War II U.S. Inflation Dynamics," NBER Chapters,in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388 National Bureau of Economic Research, Inc.
    7. LuisM. Viceira & John Y. Campbell, 2001. "Who Should Buy Long-Term Bonds?," American Economic Review, American Economic Association, vol. 91(1), pages 99-127, March.
    8. Froot, Kenneth A, 1989. " New Hope for the Expectations Hypothesis of the Term Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 44(2), pages 283-305, June.
    9. Frederic S. Mishkin, 1983. "Are Market Forecasts Rational?," NBER Chapters,in: A Rational Expectations Approach to Macroeconomics: Testing Policy Ineffectiveness and Efficient-Markets Models, pages 59-75 National Bureau of Economic Research, Inc.
    10. Don H. Kim & Jonathan H. Wright, 2005. "An arbitrage-free three-factor term structure model and the recent behavior of long-term yields and distant-horizon forward rates," Finance and Economics Discussion Series 2005-33, Board of Governors of the Federal Reserve System (U.S.).
    11. John Y. Campbell, 1995. "Some Lessons from the Yield Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 129-152, Summer.
    12. Ball, Clifford A. & Torous, Walter N., 1996. "Unit roots and the estimation of interest rate dynamics," Journal of Empirical Finance, Elsevier, pages 215-238.
    13. Langetieg, Terence C, 1980. " A Multivariate Model of the Term Structure," Journal of Finance, American Finance Association, vol. 35(1), pages 71-97, March.
    14. Peter C. B. Phillips, 2005. "Jackknifing Bond Option Prices," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 707-742.
    15. Duffee, Gregory R, 1996. " Idiosyncratic Variation of Treasury Bill Yields," Journal of Finance, American Finance Association, vol. 51(2), pages 527-551, June.
    16. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, February.
    17. Jagannathan, Ravi & Kaplin, Andrew & Sun, Steve, 2003. "An evaluation of multi-factor CIR models using LIBOR, swap rates, and cap and swaption prices," Journal of Econometrics, Elsevier, vol. 116(1-2), pages 113-146.
    18. Refet S. Gürkaynak & Brian P. Sack & Eric T. Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco.
    19. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
    20. LuisM. Viceira & John Y. Campbell, 2001. "Who Should Buy Long-Term Bonds?," American Economic Review, American Economic Association, vol. 91(1), pages 99-127, March.
    21. Orphanides, Athanasios, 2004. "Monetary Policy Rules, Macroeconomic Stability, and Inflation: A View from the Trenches," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 151-175, April.
    22. Albert Lee Chun, 2011. "Expectations, Bond Yields, and Monetary Policy," Review of Financial Studies, Society for Financial Studies, pages 208-247.
    23. Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
    24. Benjamin M. Friedman, 1980. "Survey Evidence on The Rationality of Interest Rate Expectations," NBER Working Papers 0261, National Bureau of Economic Research, Inc.
    25. David Kendrick & P. Mercado & Hans Amman, 2006. "Computational Economics: Help for the Underestimated Undergraduate," Computational Economics, Springer;Society for Computational Economics, vol. 27(2), pages 261-271, May.
    26. Alan S. Blinder, 1997. "Distinguished Lecture on Economics in Government: What Central Bankers Could Learn from Academics--And Vice Versa," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 3-19, Spring.
    27. Orphanides, Athanasios & Wilcox, David W, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71, Spring.
    28. Refet S. Gürkaynak & Brian P. Sack & Eric T. Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Proceedings, Federal Reserve Bank of San Francisco.
    29. Friedman, Benjamin M., 1980. "Survey evidence on the `rationality' of interest rate expectations," Journal of Monetary Economics, Elsevier, vol. 6(4), pages 453-465, October.
    30. Jefferson Duarte, 2004. "Evaluating an Alternative Risk Preference in Affine Term Structure Models," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 379-404.
    31. Mayshar, Joram, 1983. "On Divergence of Opinion and Imperfections in Capital Markets," American Economic Review, American Economic Association, vol. 73(1), pages 114-128, March.
    32. Kozicki, Sharon & Tinsley, P. A., 2001. "Shifting endpoints in the term structure of interest rates," Journal of Monetary Economics, Elsevier, pages 613-652.
    33. Dai, Qiang & Singleton, Kenneth J., 2002. "Expectation puzzles, time-varying risk premia, and affine models of the term structure," Journal of Financial Economics, Elsevier, vol. 63(3), pages 415-441, March.
    34. Glenn D. Rudebusch & Tao Wu, 2004. "The recent shift in term structure behavior from a no-arbitrage macro-finance perspective," Working Paper Series 2004-25, Federal Reserve Bank of San Francisco.
    35. J. Michael Harrison & David M. Kreps, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 92(2), pages 323-336.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:enepol:v:107:y:2017:i:c:p:258-277 is not listed on IDEAS
    2. Ovtchinnikov, Alexei V., 2013. "Merger waves following industry deregulation," Journal of Corporate Finance, Elsevier, pages 51-76.
    3. Evgenii Monastyrenko, 2016. "Cross-Border M&As and Eco-Environmental Performance of European Energy Utilities," FIW Working Paper series 169, FIW.
    4. Mario Fischer, 2015. "Challenging the payment effect in bank-financed takeovers," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 26(4), pages 347-376, October.
    5. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2013. "MicroHoo: Deal failure, industry rivalry, and sources of overbidding," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 20-35.
    6. Hong Zhu & Qi Zhu, 2016. "Mergers and acquisitions by Chinese firms: A review and comparison with other mergers and acquisitions research in the leading journals," Asia Pacific Journal of Management, Springer, pages 1107-1149.
    7. repec:oup:rcorpf:v:6:y:2017:i:2:p:174-233. is not listed on IDEAS
    8. repec:eee:jebusi:v:94:y:2017:i:c:p:15-31 is not listed on IDEAS
    9. Darren Filson, Saman Olfati, Fatos Radoniqi, . "Evaluating Mergers in the Presence of Dynamic Competition Using Impacts on Rivals," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    10. repec:eee:corfin:v:46:y:2017:i:c:p:51-76 is not listed on IDEAS
    11. Chen Lin & Thomas Schmid & Michael S. Weisbach, 2017. "Price Risk, Production Flexibility, and Liquidity Management: Evidence from Electricity Generating Firms," NBER Working Papers 23434, National Bureau of Economic Research, Inc.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:47:y:2012:i:01:p:57-89_00. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters). General contact details of provider: http://journals.cambridge.org/jid_JFQ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.