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The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries

  • Jianjun Miao

    (Boston University)

  • Dirk Hackbarth

    (Washington University)

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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File URL: https://www.economicdynamics.org/meetpapers/2008/paper_12.pdf
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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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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  13. Werden, Gregory J & Froeb, Luke M, 1998. "The Entry-Inducing Effects of Horizontal Mergers: An Exploratory Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 525-43, December.
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  18. Harford, Jarrad, 2005. "What drives merger waves?," Journal of Financial Economics, Elsevier, vol. 77(3), pages 529-560, September.
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  22. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-27, March.
  23. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s," NBER Working Papers 8220, National Bureau of Economic Research, Inc.
  24. Andrei Shleifer & Robert W. Vishny, 2001. "Stock Market Driven Acquisitions," NBER Working Papers 8439, National Bureau of Economic Research, Inc.
  25. Erwan Morellec & Alexei Zhdanov, 2006. "Financing and Takeovers," Swiss Finance Institute Research Paper Series 06-22, Swiss Finance Institute.
  26. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
  27. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-86, March.
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  29. Borenstein, Severin, 1990. "Airline Mergers, Airport Dominance, and Market Power," American Economic Review, American Economic Association, vol. 80(2), pages 400-404, May.
  30. Eckbo, B Espen, 1985. "Mergers and the Market Concentration Doctrine: Evidence from the Capital Market," The Journal of Business, University of Chicago Press, vol. 58(3), pages 325-49, July.
  31. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
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