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The impact of horizontal mergers on rivals: Gains to being left outside a merger

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  • Clougherty, Joseph
  • Duso, Tomaso

Abstract

It is commonly perceived that firms do not want to be outsiders to a merger between competitor firms. We instead argue that it is beneficial to be a non-merging rival firm to a large horizontal merger. Using a sample of mergers with expert-identification of relevant rivals and the event-study methodology, we find rivals generally experience positive abnormal returns at the merger announcement date. Further, we find that the stock reaction of rivals to merger events is not sensitive to merger waves; hence, 'future acquisition probability' does not drive the positive abnormal returns of rivals. We then build a conceptual framework that encompasses the impact of merger events on both merging and rival firms in order to provide a schematic to elicit more information on merger type.

Suggested Citation

  • Clougherty, Joseph & Duso, Tomaso, 2008. "The impact of horizontal mergers on rivals: Gains to being left outside a merger," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 239, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:239
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    Cited by:

    1. Joseph A. Clougherty & Tomaso Duso & Miyu Lee & Jo Seldeslachts, 2016. "Effective European Antitrust: Does Ec Merger Policy Generate Deterrence?," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1884-1903, October.
    2. Tomaso Duso & Klaus Gugler & Florian Szücs, 2013. "An Empirical Assessment of the 2004 EU Merger Policy Reform," Economic Journal, Royal Economic Society, vol. 123(11), pages 596-619, November.
    3. Gugler, Klaus & Szücs, Florian, 2016. "Merger externalities in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 230-254.
    4. Duso, Tomaso & Gugler, Klaus & Yurtoglu, Burcin B., 2011. "How effective is European merger control?," European Economic Review, Elsevier, vol. 55(7), pages 980-1006.
    5. Thomas Giebe & Miyu Lee, 2015. "Competitors In Merger Control: Shall They Be Merely Heard Or Also Listened To?," SFB 649 Discussion Papers SFB649DP2015-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    6. Sven Heim & Kai Hüschelrath & Ulrich Laitenberger, 2016. "The Duration of the EC Merger Control Process: Determinants and the Impact of the 2004 Merger Regulation Reform," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 37-62, February.
    7. Joseph A. Clougherty & Tomaso Duso, 2010. "Using Rival Effects to Identify Synergies and Improve Merger Typologies," CIG Working Papers SP II 2010-13, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    8. Keith D. Brouthers & Desislava Dikova, 2010. "Acquisitions and Real Options: The Greenfield Alternative," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 1048-1071, September.
    9. Thomas Bolli & Martin Woerter, 2013. "Competition and R&D cooperation with universities and competitors," The Journal of Technology Transfer, Springer, vol. 38(6), pages 768-787, December.
    10. Stiebale, Joel & Haucap, Justus, 2013. "How Mergers A ffect Innovation: Theory and Evidence," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79831, Verein für Socialpolitik / German Economic Association.
    11. Oliver Budzinski & Jürgen-Peter Kretschmer, 2009. "Horizontal Mergers, Involuntary Unemployment, and Welfare," MAGKS Papers on Economics 200907, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    12. Peter Ormosi, Stephen Davies, Martin Graffenberger, . "Mergers after cartels: How markets react to cartel breakdown," Journal of Law and Economics, University of Chicago Press, vol. 58(3).
    13. Yasin Ç?LHOROZ & Cuma SON?UR & Mehmet GÖZLÜ & Murat KONCA, 2016. "Mergers And Acquisit?ons In Pharmaceutical Industry As A Growth Strategy: An Investigation Upon Practice," Proceedings of International Academic Conferences 4006562, International Institute of Social and Economic Sciences.
    14. Dodonova, Anna, 2013. "Preemptive bidding in takeover auctions with externality," Journal of Economics and Business, Elsevier, vol. 69(C), pages 35-44.
    15. Gugler, Klaus & Szücs, Florian, 2013. "Spillover effects in oligopolistic markets," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79905, Verein für Socialpolitik / German Economic Association.
    16. Klaus Gugler & Florian Szücs, 2013. "Merger Externalities in Oligopolistic Markets," Discussion Papers of DIW Berlin 1321, DIW Berlin, German Institute for Economic Research.
    17. Yasin Ç?LHOROZ & Cuma SON?UR & Mehmet GÖZLÜ & Murat KONCA, 2016. "Mergers And Acquisit?ons In Pharmaceutical Industry As A Growth Strategy: An Investigation Upon Practice," International Journal of Business and Management, International Institute of Social and Economic Sciences, vol. 4(3), pages 1-12, August.
    18. Keller, Andreas, 2010. "Competition effects of mergers: An event study of the German electricity market," Energy Policy, Elsevier, vol. 38(9), pages 5264-5271, September.
    19. Avdasheva, Svetlana & Tsytsulina, Dina, 2015. "The effects of M&As in highly concentrated domestic vis-à-vis export markets: By the example of Russian metal industries," Research in International Business and Finance, Elsevier, vol. 34(C), pages 368-382.
    20. Yang, Seung Ho & Nam, Changi & Kim, Seongcheol, 2015. "Insight into the Rival Effects of M&As within the Context of Mobile Ecosystem: The Case of Google and Apple," 26th European Regional ITS Conference, Madrid 2015 127198, International Telecommunications Society (ITS).

    More about this item

    Keywords

    rivals; mergers; acquisitions; event-study;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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