Government intervention in European mergers and acquisitions

The increasing globalization of economies has leveraged protectionist attitudes in different countries during the last decades. In the context of cross-border mergers and acquisitions (M&A), national governments have intervened to “protect” big domestic firms and their industries from foreign bidders. Despite the potential for severe implications of these actions on the internationalization of firms and development of markets, the research in this area is relatively scarce, and we still know very little about the real causes and consequences of government intervention. In this paper, we study government opposition to cross-border European M&A during the period 1997–2017, an era of important changes in Europe. Using an event study methodology, we examine abnormal returns for targets and their rivals in the time period prior to actual intervention to gauge if investors perceive intervened deals as harmful events for the industry, which could justify government intervention. We use a hand collected sample of 1,574 EU15 rival firms for 48 mergers, of which 18 experience government intervention. Entropy balanced regression models show that rivals of intervened targets earn significantly lower returns relative to rivals of non-intervened targets on deal announcement. Nevertheless, rivals’ abnormal returns are not negative, suggesting that intervened deals are not perceived ex ante as harmful for industry competitiveness. The results are more consistent with investors’ ability to identify likely blocked deals, which puts downward pressure on abnormal returns to both the target companies and their rivals. These findings indicate that government interventions against foreign bidders seem to have an economic cost in the sector that is anticipated by the investors.     

Stock market bubble effects on mergers and acquisitions

We investigate if and how mergers and acquisitions are affected by trends in the capital market, and particularly by a stock market bubble. Our main findings indicate that while the prevalence of M&A increased during the technology bubble, the pricing of M&A did not change. Moreover, the bursting of the bubble seems to have led to further cautiousness by investors, which extended throughout the years subsequent to the bursting of the bubble, even when prices on the exchange had rebounded. While we do not find robust evidence for changes in price multiples outside the exchange in concomitance with the changes on the exchange, we document changes in the information used by investors to value their targets. It seems that investors experienced a learning process in terms of the type of variables preferred, appearing to be more cautious since the bubble burst. This learning process investors undergo in concomitance to processes in the market seems to result in their being less affected by periodical or cyclical sentiments of euphoria and depression in the capital market.     

Re-examination of industry effects due to withdrawn mergers

We find that the announcement of a merger withdrawal elicits negative industry effects on average, which reflect a partial reversal of the favorable industry effects that had previously occurred at the time of the merger proposal. The mean reversal is about 35% of the original favorable industry effect at the time of the merger announcement. This result for the mean effect is opposite of that found by Akhigbe et al. (2000). When we break our sample into sub-periods, we find that industry effects are substantially weaker in a more recent sub-period beyond the sample period used by Akhigbe et al. (2000). We also find that the industry effects are more negative when the share price response of the target at the time of the announced withdrawal is weaker. Whether the negative impact on the target is attributed to either a reduced likelihood of takeover or weaker industry prospects, it carries over to industry rivals.     

Intra- and inter-country bank branch assessment using DEA

Increasingly globalized financial markets with considerable activity in the multinational sector have created the need to understand inter-country bank branch performance. This topic is relatively unstudied, primarily due to the immense difficulty encountered in gathering reliable data. Fortunately, we have been able to obtain data on a group of banks operating in one geographical market area, but in different countries. In this paper we critically assess bank branch profitability and productivity in seven national branch networks owned and operated by a multi-national financial services corporation. The corporate head office (owner) imposes its management philosophy equally on all of its subsidiaries, thus removing executive managerial and corporate disparity. Results suggest that countries in which branch performance is quite consistent amongst domestic branches are less productive and less profitable when compared to other countries that have more disparity in their efficiency scores. In addition, we discovered that, surprisingly, branches do not have to be productive in order to be profitable and this led us to somewhat of a major breakthrough in inter-country branch analysis. Significant managerial advice may be derived from these results vis-à-vis trans-national benchmarking and opportunity for performance improvements both at the branch level and nationally as well.

The determinants and effects of actual,abandoned and contested mergers

This paper reports the results of research aimed at exploring why some takeover bids give rise to merger while other do not and, using as a basis of comparison matched samples of actual and abandoned mergers, the performance effects of mergers. In this work, 50 cases of abandoned mergers occurring between 1965 and 1975 were analysed against a matched sample of 50 actual mergers. In addition, 33 cases of contested bids were also analysed. Variables used reflected managerial, shareholder and financial strength considerations. Analysis covered a period three years before to three years after each bid. Techniques of analysis were differences of means and discriminant analysis. The results show that there are important differences between target companies that are acquired and those that successfully resist takeover bids. They also show the influence of managerial and financial variables as the key to a successful takeover bid rather than variables reflecting shareholder interests. Analysis of the effects of the outcome of the bids suggests that companies involved in abandoned mergers recorded a stronger performance over the subsequent 1–3 years than those that made acquisitions, especially where shareholder and financial considerations are concerned. Target companies that resisted takeover bids showed a significant performance improvement.     

A study on the wealth effects of irish takeovers and mergers

This paper presents the findings of an empirical study on the share-price effects of takeovers and mergers on the Dublin Stock Exchange. The population under study consists of all acquisitions during the period 1965–83, and it is limited to those instances in which both partners were quoted and traded on the exchange. The Market Model has been adapted to take account of market inefficiencies. Any findings are evaluated in the light of other reported research.     

Cost effects of mergers and deregulation in the U.S. Rail industry

We attempt to disentangle the effects of deregulation on rail costs from those directly attributable to mergers and acquisitions, employing a translog variable cost function, based on an unbalanced panel data set of annual observations for major U.S. Class I railroads from 1974 to 1986. We find that both deregulation and mergers contributed significantly to cost savings. However, of the accumulated cost savings achieved by the six major firms involved in mergers postderegulation, we estimate that by 1986 about 91% of the reduction in accumulated costs is due to deregulation, and about 9% is directly due to mergers and acquisitions (which in turn were facilitated by regulatory reforms).     

Intra-industry structure and the response toward rivals

This paper is a study of the pricing behavior of airline monopolists toward potential entrant carriers from different strategic groups. The results suggest that formerly regulated carriers price lower when faced by potential entrants from the newly certified carrier group than they do when they face only potential entrants from their own group. These results are consistent with the heretofore-untested hypothesis from Caves and Porter (1977) and Porter (1979) that rivalry is greater across groups than within groups.     

Airline mergers and multimarket contact

This paper examines changes in the pricing behavior of airline firms around mergers that occurred during 1985–8. We find that the changes in concentration, a measure of contact within a market, and changes in multimarket contact, a measure of contact with the same firms outside of that market, significantly affect airfares. Further, increases in multimarket contact alone are sufficient to effect an increase in fares. Antitrust policy must consider changes not only in concentration but also in multimarket contact to evaluate more fully the effect of consolidations on consumers.     

New evidence on shareholder wealth effects in bank mergers during 1980-2000

This paper employs two unique bank event study methodologies to calculate abnormal returns for bidder, target and combined firms. The first methodology is a modified market model that controls for shocks common to the banking industry. The second is an EGARCH (1, 1) model that adjusts for the violated regression assumptions of the traditional market model event study. The results of both methodologies reveal that target shareholders enjoy significantly positive abnormal returns, whereas the bidder shareholders experience significantly negative abnormal returns. Overall, announcements of bank mergers generate positive wealth effects for the combined shareholders. However, the evidence presented in this paper underscores the importance of the choice of models describing stock returns in examining the impact of bank mergers.     

Audit market structure and related changes in Taiwan: the effects of CPA qualification changes and mergers

There are four material structure changes over the certified public accountants (hereafter the CPA) industry in Taiwan since 1988. They are the relaxation of CPA qualification examinations in 1988, the merger of KPMG and Cooper & Lybrand (C&L) in 1999, the reduction of CPA examination pass rates in 2001, and the merger of T. N. Soong (TNS) and Deloitte & Touche Taiwan (D&TT) in 2003. Thus, this study investigates how the four events make impact on the market concentration of CPA industry and the market competition type. Empirical data are obtained from the Census Report of Public Accounting Firms in Taiwan (1989–2003). Main findings show that the Big international accounting firms dominate the majority of the audit market. Besides, the Big international (or Big Four) market concentration during 1992–1997 is lower than that in other periods after loosing the CPA examination pass rates since 1988. Since tightening up of CPA examination pass rates in 2001, the Big international (or Big Four) market concentration display an increasing trend. Finally, accounting firm mergers in 1999 and 2003 have all contributed to the increase of market concentration of international (or Big Four) accounting firms.     

Vertical mergers and the balance of trade

This paper examines the relationship between the vertical merger and the balance of trade. Our results show that the effects of the vertical merger on the trade balance and consumers' welfare depend on the production technology adopted by the final good manufacturers. The vertical merger will improve both the trade balance and consumers' welfare when fixed-coefficient technology is adopted. However, these positive effects could not be held when variable-coefficient technology is used to produce the final good.     

The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

Business cycle and aggregate industry mergers

This paper tests the relationship between industry-level mergers and business cycle using panel tests that allow us to control for macro-economic and industry-level determinants of merger activity. We find robust evidence that both related and unrelated industry-level mergers are pro-cyclical. However, the evidence is asymmetric between related and unrelated mergers. We also find strong evidence in support of two major theories of merger activity that have been proposed and tested in the existing literature, namely, neoclassical theory and behavioral theory. The proxies of both neoclassical and behavioral theories explain merger activity in general; however, the pro-cyclicality of mergers is not fully captured by any of these proxies, individually or collectively.     

Horizontal mergers and the balance of trade

This paper explores the relationship between market structure and the balance of trade in a dominant firm/competitive fringe model. It is shown that, absent efficiency effects, a horizontal merger between the dominant producer and a domestic fringe firm leads to a deterioration in the balance of trade, but, where efficiencies arise, this effect may be reversed. A sufficient condition for such reversal to occur is derived.     

Nonparametric measurement of potential gains from mergers: an additive decomposition and application to Indian bank mergers

Journal of Productivity Analysis - In this paper, we derive conditions under which merger between a number of firms within the same industry would induce a more cost efficient production of the...     

Unison and the people side of mergers

This article examines the merger of public service unions which resulted in the creation of Unison, the largest trade union in the UK. It examines the Unison merger from the perspective of the strategic capability of union management(s) to influence the success or otherwise of the merger process. Models and frameworks arising from research into for‐profit organisations are used, in particular those of Buono and Bowditch (1989). Use is also made of the more recent work of Cartwright and Cooper (1996). Both studies highlight the importance of the cultural aspects of the merger process. The article concludes that the chosen models illuminate the process and demonstrate the importance of further research to enable a better understanding of the management of trade unions.     

The impact of access to consumer data on the competitive effects of horizontal mergers and exclusive dealing

We examine the influence of firms’ ability to employ individualized pricing on the welfare consequences of horizontal mergers. In a two‐to‐one merger, the merger reduces consumer surplus more when firms can price discriminate based on individual preferences compared to when they cannot. However, the opposite holds true in a three‐to‐two merger, in which the reduction in consumer surplus is substantially lower with individualized pricing than with uniform pricing. Further, the merger requires an even smaller marginal cost reduction to justify when an upstream data provider can make exclusive offers for its data to downstream firms. We also show that exclusive contracts for consumer data pose significant antitrust concerns independent of merger considerations. Implications for vertical integration and data mergers are drawn.     

Corporate mergers and union wage premiums

Corporate mergers possibly enhance the labor negotiation advantage of employers. This study investigates the association between wage levels and merger activity to test the employer bargaining strength hypothesis. The results indicate significantly lower union wages as a consequence of merging. Merger activity, however, does not influence wage levels of non-union workers. These findings are supportive of the employer bargaining strength hypothesis.     

UK Intra-industry Trade with the EU North and South

This paper tests the traditional country and industry hypotheses of intra-industry trade (IIT) in vertically and horizontally differentiated products in the context of the UK's bilateral trade with EU countries. It distinguishes empirically between IIT in vertically and horizontally differential goods, between trade with EU 'North' and 'South' and between the effects of using GDP proxies and direct measures of national factor endowment differences. The paper shows that the robustness of the results of earlier multi-country studies are open to challenge, that the separation of IIT into vertical and horizontal IIT offers an important innovation to the empirical work in this area and that further development of large numbers models of IIT in quality differentiated goods is required.