Economic Shocks, Competition and Merger Activity

Abstract

This study seeks to understand “how” economic shocks drive industry merger activity. We test whether economic shocks from deregulation and technological change drive industry merger activity by increasing industry competition, controlling for the effect of valuations. We find that these shocks drive merger activity through three channels related to industry competition; deregulation drives merger activity by increasing entry and cash flow volatility; technological change drives merger activity by increasing entry and inter-firm dispersion in the quality of production technology. These findings underscore the role of the competitive mechanism in how managers reallocate assets via mergers and support the view that the industry-level clustering of merger activity is an efficiency-driven restructuring response to increased competition.

The Role of Process Innovation between Firm-Specific Capabilities and Sustainable Innovation in SMEs: Empirical Evidence from Indonesia

“…To enable these practices for the desired result, a driver is needed within an organization that can be relied on to activate and deploy resources within the capacity of the firm [122,123]. This merger action is aligned with the economic shocks and assets reallocation of managers, which emerge from technological change as a competitive mechanism [124].…”

“…The conceptual framework of sustainable innovation needs to be illuminated. From the evolutionary perspective, sustainable innovation combines the dual theory of dynamic capability and best practices as a 'body of understanding' in the firm-specific capabilities toward a 'body of practice' in the process improvement of process innovation, which Cohendet and Llerena [125] and Nelson [124] explain as a body linkage under the socio-economic approach for attaining sustainable innovation ( Figure 1). This is another approach for sustainability improvement within industries and organizations, besides the utilization of formal decision-making methods [126][127][128].…”

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

“…Reducing unit production cost can obviously decrease critical oil price, and international oil companies can take the initiative of oilfield development at a low level of investment threshold. In a competitive environment, the operation cost and sunk cost potentially affect companies in many aspects, such as merger activity [62,63]. In practice, international oil companies should strive to use more efficient management techniques and optimal oil production technology to decrease unit operation costs.…”

Glamorous Acquisitions in Telecommunications after the Market Liberalisation: Success or Failure?

“…On the other hand, the telecommunications sector, one of the most active and dynamic sectors of the economy, experienced profound strategic changes that began at the end of the 20th century and continue now in the 21st century (Eliassen et al, 2013;Girdzijauskas and Štreimikiene, 2009) with an intensive activity in M&A (Krolikowski and Okoeguale, 2018). Despite the increasing interest in this sector, there is an observable shortage of statistical and econometric analyses of a sectoral nature in telecommunications M&A (Navio-Marco et al, 2016), and the researches of the strategic impact of glamour M&A in this sector are nonexistent.…”