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This paper analyzes the effects of mergers around the world over the past 15 years. We utilize a large panel of data on mergers to test several hypotheses about mergers. The effects of the mergers are examined by comparing the performance of the merging firms with control groups of nonmerging firms. The comparisons are made on profitability and sales. The results show that mergers on average do result in significant increases in profits, but reduce the sales of the merging firms. Interestingly, these post merger patterns look similar across countries. We also did not find dramatic differences between mergers in the manufacturing and the service sectors, and between domestic and cross-border mergers. Conglomerate mergers decrease sales more than horizontal mergers. By separating mergers into those that increase profits and those that reduce them and by then examining the patterns of sales changes following the mergers, we determine the effects of mergers on efficiency and market power. Our results suggest that those mergers that decrease profits and efficiency account for a large proportion. However, we can also identify mergers that increase profits by either increasing market power or by increasing efficiency. The first conclusion seems to be a more likely explanation for large companies, whereas the latter is likely to be true for small firms.

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The dynamics of company profits for 172 of the largest manufacturing firms in Turkey are studied. A time-series analysis is used to estimate the long-run projected profits and firm-specific speed of adjustment parameters that measures the rate at which short-run rents are eroded. While persistent profitability differences across firms are observed, there is also a moderately quick erosion of rents except for the most highly profitable firms. Firm characteristics rather than industry effects account for the differences in permanent profits. Contrary to the widespread view that developing countries suffer from uncompetitive markets, the results in this paper suggest that the intensity of competition in Turkey is no less than in developed countries and similar to other developing countries.