Strategic Merger Waves: A Theory of Musical Chairs

Toxvaerd, Flavio

doi:10.2139/ssrn.374281

Cited by 49 publications

(40 citation statements)

References 51 publications

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“…6 6 From a large literature, see Perry and Porter (1985) and Farrell and Shapiro (1990) on cost synergies, Faulí‐Oller (1997) and Leahy (2002) on demand convexities, Lommerud, Straume and Sørgard (2005) on union–firm bargaining, and Deneckere and Davidson (1985) on Bertrand competition. Recent papers by Faulí‐Oller (2000), Toxvaerd (2007), and Macho‐Stadler, Pérez‐Castrillo and Porteiro (2006) model sequential mergers. Of these, the model of Faulí‐Oller is closest in spirit to that of the present paper, but like all the papers mentioned it is cast in partial equilibrium. …”

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confidence: 99%

Cross-Border Mergers as Instruments of Comparative Advantage

Neary

2007

The Review of Economic Studies

262

282

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A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital market liberalisation. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. With symmetric countries, welfare may rise or fall, though the distribution of income always shifts towards profits. The model implies that trade liberalisation can trigger international merger waves, in the process encouraging countries to specialise and trade more in accordance with comparative advantage. JEL: F10, F12, L13

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confidence: 99%

Cross-Border Mergers as Instruments of Comparative Advantage

Neary

2007

The Review of Economic Studies

262

282

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“…Firms, thus, have an incentive to merge (exercise their options) in periods of economic expansion. Similarly, Toxvaerd () claims that if an increase in an economic fundamental increases the number of expected future mergers, this can induce preemptive mergers today, leading to cluster effects.…”

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confidence: 99%

Consequences of Riding Takeover Waves: Australian Evidence

Duong

Izan

2011

Int Rev Finance

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This paper uses Australian data to analyze takeover bid premiums and longterm abnormal returns for mergers that occur during wave and non-wave periods. Findings reveal that bid premiums are slightly lower in wave periods, and bidding firms earn normal post-takeover returns (relative to a portfolio of firms matched on size and survival) if their bids were made in non-wave periods. However, bidders who announced their takeover bids during wave periods exhibit significant underperformance. For mergers that took place within waves, there is no difference in bid premiums nor is there a difference in the long-run returns of bidders involved during the first half and second half of the waves. We find that none of prominent theories of merger waves (managerial, misvaluation, and neoclassical) can fully account for Australian takeover waves and their effects. Instead, our results suggest that BanalEstanol et al.'s screening theory of merger activity, by combining the misvaluation and neoclassical theories, may provide a better explanation.

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“…Although the analysis here focused on the after‐merger behavior, a more realistic approach would incorporate endogenous merger decision processes into the empirical model to investigate the merger incentive itself. Studies by Gowrisankaran (), Fauli‐Oller (), Pesendorfer (), Toxvaerd (), and Qiu and Zhou () provide the theoretical framework that could make this possible . Furthermore, this study analyzed only the unilateral effect of horizontal mergers.…”

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confidence: 99%

Horizontal mergers and divestment dynamics in a sunset industry

Nishiwaki

2016

The RAND J of Economics

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In an oligopolistic market, socially excessive entry takes place because of business-stealing effect which is a gain to the entrant but not to the industry as a whole. Similarly, in a sunset industry with declining demand, now socially excessive capacity cannnot be dissolved because everyone intends to free ride on the reduction of industry supply expected from someone else's divestment. As a result, no firm will divest, even though divestment contributes to the saving on fixed costs. This paper highlights the role of mergers as a device for internalizing the business-stealing effect and thereby promoting divestment, and examines if the merger-induced divestment could improve the total welfare using the case of cement mergers in Japan. A model of divestment based on the Markov perfect equilibrium framework of Ericson and Pakes (1995) is estimated by an asymptotic least squares. Then a counterfactual experiment is conducted to quantify the welfare impact of mergers, and to show that merged firms in fact divested their facilities more and contributed to the improvement of the total welfare despite the reduced consumers surplus. JEL Classification: L13, L41, L61

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Strategic Merger Waves: A Theory of Musical Chairs

Cited by 49 publications

References 51 publications

Cross-Border Mergers as Instruments of Comparative Advantage

Cross-Border Mergers as Instruments of Comparative Advantage

Consequences of Riding Takeover Waves: Australian Evidence

Horizontal mergers and divestment dynamics in a sunset industry

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