The effects of mergers: an international comparison

Abstract

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.

Cross-border mergers and acquisitions and the role of trade costs

“…Using the Input-Output table for 1992 for the US (assuming that these relationships are representative for the OECD as a whole) in combination with bilateral trade data suggests that the actual number of vertical cross-border M&A is very small. This is also confirmed by Gugler et al (2003) who suggest that most mergers across 4-digit industries are unrelated to input-output linkages.…”

“…It is claimed that this dataset includes all domestic and cross-border mergers and acquisitions worldwide in excess of one million dollar. This dataset has been used relatively little in previous research, although a number of studies have used these data to analyse the nature of primarily domestic mergers (for example, Gugler et al 2003). Manchin (2004) and Di Giovanni (2005) appear to be the only studies to have used these data to explicitly analyse patterns in aggregate cross-border mergers and acquisitions.…”

Sources of Synergy Realization in Mergers and Acquisitions: Empirical Evidence from Non-Serial Acquirers in Europe

“…To identify abnormal changes in the level of sales of the combined firm, we compare the bidder as well as the takeover target with a benchmark firm in its own industry (see also Gugler et al, 2003). We require all potential matching firms to have not been involved in an M&A from two years before until three years after the deal under consideration.…”

Merger policy to promote 'global players'? A simple model

“…The same two firms also export to a market abroad, referred to as the world market and indexed W. In the domestic market the two firms do not face any competition, whereas on the market abroad they compete with two firms from another country, called the foreign country, F. These two foreign firms in addition supply the good to their respective domestic market, where again they are the only suppliers. The model framework is illustrated in Figure 1. 2 The strong increase in international mergers since the 1980s is documented in Gugler et al (2003). cons.…”