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The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries

Author

Listed:
  • 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.

Suggested Citation

  • Jianjun Miao & Dirk Hackbarth, 2008. "The Timing and Returns of Mergers and Acquisitions in Oligopolistic Industries," 2008 Meeting Papers 12, Society for Economic Dynamics.
    • Handle: RePEc:red:sed008:12
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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