Trade Liberalization and the Profitability of Domestic Mergers

It is often thought that a tariff reduction, by opening‐up the domestic market to foreign firms, should lessen the need for a policy aimed at discouraging domestic mergers. This implicitly assumes that the tariff in question is sufficiently high to prevent foreign firms from selling in the domestic market. However, not all tariffs are prohibitive, so that foreign firms may be present in the domestic market before it is abolished. Furthermore, even if the tariff is prohibitive, a merger of domestic firms may render it nonprohibitive, thus inviting foreign firms to penetrate the domestic market. Using a simple example, the authors show that, in the latter two cases, abolishing the tariff may in fact make the domestic merger more profitable. Hence trade liberalization will not necessarily reduce the profitability of domestic mergers.     

Brotherhood of competition: Foreign Direct Investment and domestic mergers

We examine the effects of mergers on Foreign Direct Investment (FDI), and on shaping national policies regarding FDI. In this work we develop a partial equilibrium model of an oligopolistic industry in which a number of domestic and foreign firms compete in the market for a homogeneous good in a host country. It is assumed that the number of foreign firms is endogenous and can be affected by the government policy in the host country. The government sets the policy (subsidies) to maximise social welfare. We allow domestic mergers. Our main results suggest that when the host country government imposes discriminatory lump-sum subsidy in favor of foreign firms, a merger of domestic firms will increase the number of FDI if the subsidy level is exogenous. With an endogenous level of subsidy, a merger of domestic firms will decrease (increase) the welfare if the domestic firms are more (less) efficient.     

Horizontal Mergers in a Liberalizing World Economy

This paper is concerned with the effect of horizontal mergers in an open economy environment. It is found that, with the presence of economies of scale and imperfect competition, a domestic merger may bring about an additional gain to the country in that it shifts profit from foreign to domestic firms. Consequently, the condition on the degree of economies of scale for permitting domestic horizontal mergers would be weaker under an open economy than under a closed economy. Furthermore, the analysis shows that such mergers can also raise foreign welfare. Finally, the model is used to discuss the need to coordinate merger policies among trading partners in tandem with trade liberalization.     

同行业企业并购决策的同伴效应及内在机制

并购是当前国内外企业常用的发展战略之一,是提升企业竞争力、增加经济效益的重要手段。本文从非理性行为视角出发,采集2010—2018年间A股市场中重大资产并购重组数据作为研究样本进行实证分析。研究发现,上市企业并购决策存在同伴效应;信息传输、软件和信息技术服务等新兴行业的企业同行并购频率对企业并购概率产生的影响小于制造业等传统行业;民营企业之间的并购同伴效应强于国有企业,但同伴效应在不同权属企业之间不具有传递性;高管联结程度高的企业并购同伴效应大于低联结程度企业。因此,建议加强对民营企业、传统行业、高管高联结企业并购非理性行为的监管,避免由于企业盲目跟风给企业绩效带来损失。     

On Mergers and Agglomeration

We formulate a model of mergers and acquisitions assuming a monopolistic competitive industry that exhibits agglomeration economies. We provide the conditions for the existence of a non‐trivial Nash equilibrium in the acquisition market at which the most productive firm acquires a range of less‐productive firms. Most importantly, we show that domestic merger and acquisition activities are international trade promotionary. We also show that such types of mergers and acquisition will improve the competitive position of foreign firms leading to an increase in their market share. In addition, domestic mergers and acquisitions will increase the number of imported varieties.     

Merger Waves and Firm Growth: Contemporary Historical Evidence

This article presents the outcomes of an evaluation of the impact of the series of mergers of the local exchange companies that have taken place between 1988 and 2001 on an important measure of performance of the firms undergoing the mergers. The analysis reveals that after firms have undertaken one merger they experience little or no growth after such mergers, but the impact of second mergers on firm growth have been negative. If an important motive in undertaking mergers has been to enhance firm growth, then the merger waves that have been approved and consummated have led to performance declines. The impacts of the merger wave on the growth of the telecommunications sector firms have been negative.     

Horizontal Mergers and Merger Waves in a Location Model

We consider sequential mergers in a spatial model with Cournot competition. This model is suitable for explaining the behaviour of some industries where several brands of the same product are delivered by plants. The automobile and oil product industries are examples. To discuss sequential mergers, we use the method of Nilssen and Sørgard (1998). We show that if the transportation cost per length is large relative to market size, a merger wave occurs. In addition, it might improve social surplus. On the other hand, if the transportation cost per length is relatively small, a merger wave does not occur even though firms would be better off with sequential mergers.
We also compare our model to that of Levy and Reitzes (1992) who consider horizontal mergers with spatial price competition. We show that in a merger of neighbouring firms the merged firm's profit decreases. This result is opposite to that of Levy and Reitzes (1992).
Finally, we consider how a regulator affects sequential mergers. When each merger occurs, the regulator assesses each merger. In this case, there is a possibility that the existence of the regulator deters welfare-improving sequential mergers.     

The impact of mergers and acquisitions on company employment in the United Kingdom

This paper provides a systematic empirical analysis of the effects of take-over and merger activity on firm employment in the United Kingdom using a specially constructed database for the period 1967-1996. Our results indicate that significant rationalisations in the use of labour occur as firms reduce joint output and increase efficiency post-merger. These effects are particularly pronounced in the case of related and especially hostile mergers.     

A Theory of Mergers and Merger Waves

We consider a sequential merger game between Cournot firms with homogeneous product and quadratic cost. A large slope of the marginal cost function or a small slope of inverse market demand are both predicted to increase the incentive to merge. The profitability of any merger increases with the number of mergers having already taken place. Thus, mergers tend to occur in waves in industries that have experienced exogenous shocks affecting firms’ cost or demand. We also show some mergers that are not profitable for merged firms in the short-run may take place in the early stage of a wave.     

The impact of multinational entry on domestic market structure and investment

We model the impact of different modes of multinational entry on the choices of domestic firms. Focusing on the competitive effects of foreign entry for the host country we demonstrate that greenfield investment will increase competition only if it is not countered by anti-competitive reactions on the part of the domestic firms. Together with cross-border mergers and acquisitions the model, thus, provides two alternative explanations for the increase in concentration ratios in industries with mostly horizontal foreign direct investment. Moreover, foreign presence is shown to raise total investment in the local industry at the cost of crowding out domestic investment.     

Mergers and Trade Policy under Oligopoly

For an oligopolistic industry, the effects of mergers on the domestic country's optimal trade policy are analyzed. If the domestic country pursues an optimal trade policy then it will always lose as a result of a foreign merger. The optimal domestic response to a foreign merger is to decrease (increase) the tariff if demand is concave (convex) and to increase the production subsidy. The foreign merger reduces foreign welfare when the domestic country pursues its optimal trade policy. The optimal domestic response to a domestic merger is to leave the tariff unchanged and to increase the production subsidy.     

CHARACTERIZATION AND ANALYSIS OF COOPERATIVE MERGERS AND THEIR RESULTS

This study characterizes the mergers and acquisitions undertaken in the Spanish agrifood sector during the period 1995–2005. First, it aims to establish the pre‐merger financial characteristics of the merging cooperatives in comparison with other firms in the agrifood sector. For this, the financial situation is analyzed in the different types of merger carried out (merger by formation or merger by acquisition), and the different roles played by the cooperatives (acquiring, acquired or involved in a merger in which a new cooperative is formed). The second and final objective is to determine whether these mergers have managed to improve the economic‐financial situation of the companies involved, either by increasing income and size or by reducing relative costs. For this purpose, several non parametric tests and a probit model were used. The results show that on average following a merger there were no statistically significant improvements in the economic‐financial indicators studied.     

Merger policy in innovative industries

We analyze optimal merger policy in R&D-intensive industries with product innovation aiming to improve the quality of products. Our results suggest that a permissive merger policy is rarely optimal in high-tech industries when the antitrust authority considers a welfare standard that balances the impact of mergers on consumers’ surplus and firms’ profits. In particular, relative to a benchmark where the effects from R&D are absent, we show that the optimal merger policy should not be substantially more permissive in the presence of those effects from R&D.     

Mergers,multiperiod Cournot competition,and Coasian dynamics

Under the simplifying conditions of product homogeneity, linear demand, symmetric and constant marginal costs, the static Cournot–Nash equilibrium predicts that exogenous horizontal mergers generate losses for the participants if the participants represent less than 80% of the firms in the industry. I successfully challenge the applicability of this well-known merger paradox to markets for durable goods by introducing Coasian dynamics to the quantity competition, while maintaining all other simplifying conditions. I demonstrate that exogenous mergers with a relatively small number of insiders in industries with a relatively large initial number of firms can be profitable as long as the common discount factor is sufficiently high and the decision-making horizon is sufficiently long. Unlike previous research on mergers in durable-goods industries, the significance of the decision-making horizon is emphasized; mergers that are unprofitable in a short-horizon version of my model for all values of the discount factor can prove profitable in a long-horizon version provided that agents are sufficiently patient.     

Applying digital analysis to detect fraud: an empirical analysis of US marine industry

Firms have tendency to window dress their financial statements by reporting earnings to achieve reference points represented by N × 10 ^k . Such practice of reporting rounded earnings is likely due to (1) firms may believe that investors perceive a reported earnings of $1.99 million to be significantly less than $2.0 million; and/or (2) contracts between firms and stakeholders are likely to express earnings in round numbers. Auditors have employed more sophisticated digital analysis such as Benford's law, as part of their fraud detection processes. This study investigated the window dressing behaviour among firms in the US marine industry. The findings of the study suggest that window dressing is a significant practice among the marine firms. However, the extent of the pervasiveness of such behaviour is less severe among marine firms than among all publicly-listed firms in the entire US economy, suggesting that the quality of financial statements of marine companies is higher than the overall population of public companies.     

To innovate or to transfer?

FDI has been considered by many development economists as an important channel for transfer of technology to developing countries. It is suggested that modern, advanced technologies introduced by multinational firms can diffuse to domestic firms through spillovers. In this paper, we study innovation and technology transfer activities of domestic and foreign firms in Turkish manufacturing industries, and the impact of horizontal, vertical and labor spillovers on these activities. Our analysis shows that foreign firms are more innovative than their domestic counterparts, and transfer technology from abroad (mostly from their parent companies). Horizontal spillovers from foreign firms seem to be insignificant. The effects of foreign firms on technological activities of other firms in vertically related industries are ambiguous. High-tech suppliers tend to have a high rate of innovation when the share of foreign users is high, but the opposite is true for users: high-tech users supplied mainly by foreign firms tend to have a lower rate of innovation. Labor turnover is found to be the main channel of spillovers. Our findings reiterate the importance of tacitness of knowledge, and confirm that technology cannot easily be transferred through passive mechanisms.     

The take-over market for privately held companies: the US experience

The volume of acquisitions involving privately held firms hasfar surpassed that of publicly traded firms in recent years;yet this segment of the take-over market remains largely unexplored.In analysing the unique features of private target take-overs,we compare the mergers and acquisitions markets for unquotedand quoted firms on several dimensions including methods ofpayment, offer premiums and bidder wealth effects. Our resultsshow that these mergers provide positive shareholder wealthbenefits for bidders and relatively high premiums for privatelyheld targets. Also, the market's reaction depends on whetherit perceives the price paid for the target as too high or toolow, a rational response given the sentiment at the time ofthe announcement.     

Mergers and innovation: evidence from a panel of US firms*

Mergers lead to larger firms and a less competitive market structure, but their effects on innovation are not clear. Mergers may improve innovation incentives by promoting economies of scope and scale, R&D activities, and increasing the ability to deal with uncertainties. However, mergers may also discourage innovation by reducing competition, increasing costs, and decreasing production and R&D efficiencies. In this study, we investigate merger impacts on innovation using a panel data consisting of four different data sets on publicly traded US manufacturing firms from 1980 to 2003. Our proxy for innovation is based on citation-weighted patent stocks. In our estimation model, we control for endogeneity using instrumental variables and factors such as market share, size, industry, and time. We find that mergers are positively and significantly correlated with firms’ innovation. Our findings also indicate that merger effect on innovation is heterogeneous across industries, increases with market share, and is greater in the long run. Our findings are robust to alternative measures of innovation.     

International merger activity and the national regulation of mergers: A UK perspective

This paper traces out recent changes in the globalisation of merger activity and considers its implications for national and international regulation of mergers and joint ventures. It argues that a large proportion of mergers involve small firms which may have an important effect on the competitive process and that regulation of large mergers should be complemented by industrial and financial policies to encourage the growth of smaller independent firms.     

Interrelationship among foreign presence,domestic sales and export intensity in Chinese manufacturing industries

Using panel data on six Chinese manufacturing industries over the period 2005–2007, this article explores the interrelationship among foreign presence, domestic sales and export intensity of local firms. We find that the domestic sales and exports are complementary for local firms in China’s pharmaceutical industry, whereas in the case of the textile, transportation equipment, beverage, communication equipment and general equipment manufacturing industries, domestic sales and exports are substitutes. An increase in the average domestic sales increases foreign presence in all industries. The same applies to an increase in the average export intensity. An increase in the level of competition in China’s textile industry increases the export intensity as well as domestic sales of local textile firms. However, an increase in the level of competition in the pharmaceutical industry leads to a very large decrease in export intensity of local pharmaceutical firms. In the case of China’s transportation equipment manufacturing industry, an increase in the level of competition decreases domestic sales of local firms. Furthermore, an increase in the firm size increases domestic sales of Chinese firms in all six manufacturing industries.