Do low search costs facilitate like-buys-like mergers? Evidence from common bank networks

Chen, Jiakai; Kim, Joon Ho; Rhee, S. Ghon

doi:10.1016/j.jfineco.2020.12.002

Cited by 7 publications

(1 citation statement)

References 51 publications

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“…Conversely, the theory of mergers of Rhodes‐Kropf and Robinson (2008) argues that assortative matching (‘like buys like’ mergers) is more likely. Following them, as summarized in the recent literature review provided by Aktas and Boone (2023), four studies provide empirical evidence to ‘like buys like’ type of mergers: Hoberg and Phillips (2010) conclude that firms with broad product market similarities to all firms in the economy are more likely to merge; Bena and Li (2014) report that technological overlap between firm pairs has a positive effect on transaction incidence; Lee et al (2018) find that mergers are more likely when firms have related human capital; and Chen et al (2021) show that ‘like buys like’ mergers are more probable between firms connected through a common bank network. Our work is the fifth one in the literature to support the ‘like buys like’ effect.…”

Section: Introductionmentioning

confidence: 99%

Does innovation drive mergers and acquisitions in the financial sector?

Dang

2023

Euro Fin Management

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Does innovation drive mergers and acquisitions in the financial sector? This issue is challenging because classical measures of innovation are unavailable in the financial sector. Thus, we introduce an innovation measure that can be used for financial firms. Considering US financial deals, we highlight the impact of a financial firm's innovative activities on the likelihood of becoming an acquirer or a target. We detect a ‘like buys like’ effect, implying that financial mergers and acquisitions are more likely when firms are at a similar level of innovation. We further show that this effect is associated with greater synergistic value.

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Section: Introductionmentioning

confidence: 99%

Does innovation drive mergers and acquisitions in the financial sector?

Dang

2023

Euro Fin Management

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Measuring the Quality of Mergers and Acquisitions

Ellahie,

Hshieh,

Zhang

2024

Management Science

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We develop a measure of merger and acquisition (M&A) quality using accounting theory. This measure, implied return-on-equity improvement (IRI), quantifies the minimum improvement in the target’s post-acquisition return on equity (ROE) the acquirer must attain to break even on the acquisition price. Employing a large sample of M&As from 1980 to 2018, we find that a high IRI is, on average, less attainable ex post and predicts worse acquirer financial performance. The acquirer’s ROE growth over the first three years after the M&A is 11 percentage points lower for high-IRI M&As compared with low-IRI M&As. Worse high-IRI acquirer performance is observable through higher operating costs, tighter financial constraints, lower investments, and larger and more frequent goodwill impairments. We also find that IRI increases with acquiring chief executive officers’ overconfidence, incentive misalignment, and difficulty in estimating synergies; IRI decreases with acquirers’ financial discipline and due diligence effort. As such, overestimating synergies and managerial incentives that drive overpayment are potential mechanisms underlying IRI’s negative association with acquirers’ post-M&A performance. This paper was accepted by Eric So, accounting. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01225 .

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