Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis

Abstract

the Securities Exchange Commission, and the University of Maryland for helpful comments. All errors are the authors alone. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Policy uncertainty, derivatives use, and firm-level FDI

“…Examples include Gentzkow and Shapiro (2010); Hoberg and Phillips (2010); Boudoukh et al, (2013), and Alexopoulos and Cohen (2015). Our work suggests that newspaper text searches can yield useful proxies for economic and policy conditions stretching back several decades, which could be especially valuable in analyzing earlier eras and countries with fewer data sources.…”

Technology spillovers and corporate cash holdings

“…8 A major advantage for innovative firms to hoard cash is to allow them to undertake valuable R&D projects when they arise. This stems from the precautionary motive of cash holdings 7 The usefulness of text-based analysis in finance has also been illustrated in Hanley and Hoberg (2010), Hoberg and Phillips (2010a, 2010b. 8 In Appendix A, we consider a simple extension of BSV's (2013) analytic model and derive propositions that are consistent with hypotheses developed in this section.…”

Mergers, Spinoffs, and Employee Incentives

“…One can show that, as the probability that the bargaining process breaks down tends to zero, the outcome of the subgame perfect equilibrium of the bargaining game between firm i and employee i is such that the employee and the firm receive the value of their outside options (the value that they can obtain in the case of a breakdown in bargaining), plus the fractions β and 1 − β, respectively, of the surplus that they jointly generate net of the sum of their outside options. 13 We can determine the payoffs from bargaining between firm i and employee i by proceeding backwards. If bargaining between employee i and firm i breaks down, employee i has the opportunity to bargain with firm j.…”

“…It is straightforward to extend our model such that with some exogenous probability the employees may generate a higher value when their innovation is developed at the rival firm. 13 Note that this division of the surplus corresponds to the Nash-bargaining solution with outside options, in which the employee's and the firm's bargaining powers are, respectively, β and 1 − β. See Binmore, Rubinstein, and Wolinski (1986).…”

“…Hence, our paper offers an explanation for why many mergers fail to create value, and why mergers might be bad for innovation and development of new products. This result is particularly relevant given the findings in Hoberg and Phillips (2009) that mergers are motivated by the desire to introduce and develop new products in order to enter new product markets.…”