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Mergers and Acquisitions: An Experimental Analysis of Synergies, Externalities and Dynamics

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  • Rachel T. A. Croson
  • Armando Gomes
  • Kathleen L. McGinn
  • Markus Nöth

Abstract

Mergers and acquisitions improve market efficiency by capturing synergies between firms. But takeovers also impose externalities (both positive and negative) on the remaining firms in the industry. This paper describes a new equilibrium concept designed to explain and predict takeovers in this setting. We experimentally compare the new equilibrium concept to that of competing concepts in situations without and with externalities. Moreover, we examine the predicted dynamics of takeovers and outcome implications of those dynamics. Our experimental results support the predictions of the new equilibrium concept and provide implications for further empirical tests.

Suggested Citation

  • Rachel T. A. Croson & Armando Gomes & Kathleen L. McGinn & Markus Nöth, 2004. "Mergers and Acquisitions: An Experimental Analysis of Synergies, Externalities and Dynamics," Review of Finance, European Finance Association, vol. 8(4), pages 481-514.
    • Handle: RePEc:oup:revfin:v:8:y:2004:i:4:p:481-514.
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    File URL: http://hdl.handle.net/10.1093/rof/8.4.481
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    Citations

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    Cited by:

    1. Dai, Yun & Gryglewicz, Sebastian & Smit, Han T.J. & De Maeseneire, Wouter, 2013. "Similar bidders in takeover contests," Games and Economic Behavior, Elsevier, vol. 82(C), pages 544-561.
    2. Urs Fischbacher & Nadja Kairies-Schwarz & Ulrike Stefani, 2017. "Non-additivity and the Salience of Marginal Productivities: Experimental Evidence on Distributive Fairness," Economica, London School of Economics and Political Science, vol. 84(336), pages 587-610, October.
    3. Matthew McGinty & Garrett Milam & Alejandro Gelves, 2012. "Coalition Stability in Public Goods Provision: Testing an Optimal Allocation Rule," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 327-345, July.
    4. Andersson, Ola & Wengström, Erik, 2012. "Credible communication and cooperation: Experimental evidence from multi-stage Games," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 207-219.
    5. Donja Darai & Catherine Roux & Frédéric Schneider, 2019. "Mergers, mavericks, and tacit collusion," Working Papers 201902, Cambridge Judge Business School, University of Cambridge.
    6. Gary Bolton & Jeannette Brosig-Koch, 2012. "How do coalitions get built? Evidence from an extensive form coalition game with and without communication," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(3), pages 623-649, August.
    7. McGinn, Kathleen L. & Milkman, Katherine L. & Nöth, Markus, 2012. "Walking the talk in multiparty bargaining: An experimental investigation," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 278-291.
    8. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
    9. Harold Houba & Gerard Laan & Yuyu Zeng, 2015. "International Environmental Agreements for River Sharing Problems," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 62(4), pages 855-872, December.
    10. Yongqiang Gao & Miaohan Zhang & Haibin Yang, 2023. "Looking Good in the Eyes of Stakeholders: Corporate Giving and Corporate Acquisitions," Journal of Business Ethics, Springer, vol. 185(2), pages 375-396, June.
    11. Huber, Christoph & Kirchler, Michael, 2023. "Experiments in finance: A survey of historical trends," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    12. Gary E Bolton & Jeannette Brosig, 2007. "How do coalitions get built - Evidence from an extensive form coalition game with renegotiation & externalities," Working Paper Series in Economics 30, University of Cologne, Department of Economics.
    13. Bogan, Vicki & Just, David, 2009. "What drives merger decision making behavior? Don't seek, don't find, and don't change your mind," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 930-943, December.
    14. Ryan Oprea, 2008. "Free Cash Flow and Takeover Threats: An Experimental Study," Southern Economic Journal, John Wiley & Sons, vol. 75(2), pages 351-366, August.
    15. Tim M. Zhou, 2023. "Auctions of failed banks: an analysis of losing bidders," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 155-176, July.

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