The effect of mergers on firms’ costs: evidence from the HMO industry

We examine the effect of mergers on firms’ costs, using a national data set that contains information on both pre- and post-merger costs for firms in the Health Maintenance Organization (HMO) industry. By utilizing data on all HMOs that operated in the United States from 1985 to 1997, we observe enough mergers to obtain estimates of both short-run and relatively permanent merger effects. On average, we do not find evidence that mergers allowed HMOs to realize greater economies of scale or that mergers improved efficiency by shifting the cost function. On the other hand, mergers between HMOs that produce Medicare and other products are likely to create dis-economies of scope that increase costs.     

Foreign Acquisitions in the United States and the Effect on Shareholder Wealth

The research presented here indicates that foreign acquisitions in the United States in the form of mergers, have resulted in abnormal returns to targets of nearly 22 percent, a figure not much higher than in domestic mergers. Sell-off abnormal returns have averaged nearly three percent, substantially higher than the average 0.7 to 1.66 percent in the domestic case. We find that merger abnormal returns have been substantially higher in our first subperiod (1982–84) than in the second (1985–87). For selloffs, our results are reversed-abnormal returns have been higher in the second subperiod. In cross-sample tests, we find the Japanese paying the highest merger premiums/abnormal returns, while the sell-off abnormal returns are highest when Germans are the buyers. We also find significant differences across industry samples but not across combination type samples. We do not find a significant relationship of these abnormal returns to the firm's accounting and financial variables.     

Mergers to Monopoly

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.     

Price Discrimination in Input Markets: Downstream Entry and Efficiency

The extant theory on price discrimination in input markets takes the structure of the downstream industry as exogenously given. This paper endogenizes the structure of the downstream industry and examines the effects of permitting third‐degree price discrimination on market structure and welfare. We identify situations where permitting price discrimination leads to either higher or lower wholesale prices for all downstream firms. These findings are driven by upstream profits being discontinuous due to costly entry. Moreover, permitting price discrimination fosters entry which often improves welfare. Nevertheless, entry can also reduce welfare because it may lead to a severe inefficiency in production.     

Beyond profitability: effects of acquisitions on technical efficiency in the Italian pasta industry

Unlike traditional studies on the impact of ownership changes—which use either profitability measures or stock prices—this paper investigates the impact of acquisitions on acquired firms' technical efficiency. Using a panel of Italian firms in the pasta industry for the 1981–1997 period, I estimate a stochastic production frontier with exogenous factors affecting efficiency in a translog specification with non‐neutral technical progress. The main result is that acquired firms experience, within the 6 years period following the acquisition, an increase in technical efficiency of the order of 10%. This result is statistically significant and proves to be robust with respect to the inclusion of size and calendar year effects as explanatory variables of firms' inefficiency. These findings contribute to the debate on the welfare gains of ownership changes by providing evidence that mergers and acquisitions lead to cost savings, due to the reduction of acquired firms' X‐inefficiency. Copyright © 2002 John Wiley & Sons, Ltd.     

Corporate governance and the returns to acquiring firms' shareholders: an international comparison

We examine the effects of mergers on the returns to acquiring companies' shareholders for a large sample of companies from both Anglo‐Saxon and non‐Anglo‐Saxon countries over the 1980s and 1990s. With the important exception of Japan, we find similar patterns of returns across both types of countries. For a sample of 9733 acquiring companies the mean percentage gain over a short window of 21 days is 0.6%. This picture changes dramatically as the market has more time to evaluate the mergers and/or the acquiring firms. After three years, acquirers' shareholders in the United States and continental Europe lost on average 19% of their market value compared to a portfolio of non‐merging firms in their size deciles and their two‐digit industry, in Canada, Australia and New Zealand roughly 16%, and in the four Scandinavian countries almost 15%. Further analysis indicates that some mergers are consistent with the hypothesis that mergers generate synergies, but that a majority of mergers in Continental Europe are explained by the managerial discretion and/or hubris hypothesis. Our findings also suggest that corporate governance institutions in the United States and the other Anglo‐Saxon countries lead to better investment performance than in continental Europe, when one confines one's attention to mergers. Copyright © 2007 John Wiley & Sons, Ltd.     

The Transition from Strategic Technology Alliances to Mergers and Acquisitions: An Exploratory Study

This paper studies a number of research topics derived from the basic question: do interfirm alliances change into mergers and acquisitions as companies that were previously co-operating become integrated? The analysis is limited to the group of strategic technology alliances, i.e. those interfirm agreements for which joint technology development or technology sharing is part of the agreement. The paper first explores the literature that refers to the possible transition from strategic technology alliances to mergers and acquisitions. Based on this we formulate a number of hypotheses regarding the change in modes of governance and several dimensions of this process related to the international distribution of transformed alliances, their industry specificity, the size of firms, and the distribution of contractual and equity agreements. The major finding of our research is that the transformation from strategic technology alliance to merger and acquisition hardly ever takes place. This suggests that alliances and mergers and acquisitions are not part of a rather smooth continuum but they are first of all different modes of governance where one mode certainly does not lead to the other     

Can the Timing of Negotiations Impact the Consequences of Mergers?

This paper uses a theoretical model to examine whether variation in the timing of negotiations between buyers and sellers can alter the effects of mergers between sellers. The model shows that mergers between horizontally overlapping firms lead to price increases regardless of how negotiations take place. In contrast, mergers between firms in different markets can only lead to higher compensation for the combined firm when negotiations occur sequentially. However, any price effects from out‐of‐market mergers stem from a mechanical redistribution of existing market power and not from a loss in competition. Published 2014. This article is a U.S. Government work and is in the public domain in the USA.     

Mergers with Product Market Risk

This paper studies the causes and the consequences of horizontal mergers among risk-averse firms. The amount of diversification depends on the allocation of shares among the merging firms, with a direct risk-sharing effect and an indirect strategic effect. If firms compete in quantities, consolidation makes firms more aggressive. Mergers involving few firms are then profitable with a relatively low level of risk aversion. With strong enough risk aversion, mergers reduce prices and improve social welfare. If firms instead compete in prices, consumers do not benefit from mergers in markets with demand uncertainty, but can easily benefit with cost uncertainty.     

The revelation of information in strategic market games: A critique of rational expectations equilibrium

We criticize the R.E.E. approach to asymmetric information general equilibrium because it does not explain how information gets ‘into’ the prices. This leads to well-known paradoxes. We suggest a multiperiod game instead, where the flow of information into and out of prices is explicitly modeled. In our game Nash equilibria (N.E.) (1) generalize Walrasian equilibria to asymmetric information, (2) exist generically, (3) eliminate pure speculation, (4) allow prices to reveal information and markets to become more efficient over time, (5) are consistent with the weak efficient markets hypothesis that tracking past prices is not profitable, (6) yet always lead to higher utility for better informed agents (such as experts). Throughout the paper we use one concrete game. In the last section we prove that there is a broad range of games that would have the same properties.     

Drivers of optimal prices in two-sided markets: the state of the art

In two-sided markets, a platform has two groups of customers and enables their interactions. Demand on one market side depends on demand on the other; therefore, when platforms set prices, they must consider this interdependency and set prices on both sides simultaneously. By surveying the vast theoretical marketing and economics literature, this article provides a clear and systematic overview of profit-maximizing pricing in two-sided markets. It identifies and structures the various drivers of those optimal prices. Using this framework, it summarizes the findings from prior research and offers an assessment of the state of the art with regard to drivers of optimal prices and their impacts on a platform’s price setting. This improves understanding of both the principles of two-sided markets and their optimal pricing. Finally, this state of the art paper suggests some directions for further research.     

Facts, Fiction, and the Fourth Estate

A bstract .   This paper examines the reaction of the market to news that the Washington Post had won a Pulitzer Prize for a story that was demonstrably false. The reaction to the stock price of the Post as well as the stock prices of other newspapers is examined using dummy variables for two days, four days, and six days. The results show that while the decline in the Post 's stock price was relatively small, the t-statistics for all of the dummy variables are significant. The paper also examines the McChesney (1987 ) hypothesis that the nature of the newspaper business is such that it is difficult for the residual claimants of the paper to receive the financial gains of important news stories. These rents, he points out, are distributed to others. We look to see whether or not residual claimants of that newspaper can be harmed if that newspaper publishes a false story and receives large amounts of bad publicity for its error.     

Deregulation, Mergers, and Cost Savingsin Class I U.S. Railroads, 1974-1986

In this paper we attempt to disentangle the effects of deregulation on rail costs from those directly attributable to mergers. We estimate that cost reductions obtained from mergers ranged from a high of 33% for the Burlington Northern to a low of a 3% cost increase for the CSX. However, firms not engaged in significant merger activities experienced similar cost differentials indicating that consolidation was not a prerequisite for cost savings. We conclude that although mergers did confer some benefits on the participating firms, they were not a prerequisite for railroads being able to achieve substantial cost savings.     

Poverty and crime in 19th century Germany

We estimate the impact of poverty on crime in 19th century Bavaria, Germany. Rainfall is used as an instrumental variable for grain (rye) prices to address econometric identification problems in the existing literature. The rye price was a major determinant of living standards during this period. The rye price has a positive effect on property crime: a one standard deviation increased property crime by 8%. OLS estimates are twice as large as instrumental variable estimates, highlighting the value of our empirical approach. Higher rye prices lead to significantly less violent crime, though, and we argue that higher beer prices, caused by the higher rye prices, are a likely explanation.     

Can the interests of shareholders explain industry attitudes toward banking-insurance mergers?

The banking industry generally supports and the insurance industry generally opposes the removal of regulatory boundaries between the two industries. In an effort to explain these industry attitudes, this article examines the effect, in the absence of synergies, of hypothetical mergers of banks and insurance companies on shareholders' risk and return. The results suggest that, if cash flows are not impacted by the mergers, the attitudes of industry management toward inter-industry mergers cannot be motivated by concerns for shareholder risk and return since, during the data period considered, insurer shareholders would have gained more by acquiring banks than bank shareholders would have gained from acquiring insurers.     

频繁并购重组与异常审计收费

以2012—2017年A股上市公司为样本,采用异常审计费用衡量审计师对上市公司频繁并购重组的风险溢价,探究企业频繁并购重组与审计师风险溢价收费的关系,研究发现企业频繁并购重组会导致审计师风险溢价提高。从商誉和盈余管理角度探究其路径机制发现,商誉和真实盈余管理是频繁并购重组导致更高审计师风险溢价两个重要中介变量,而应计盈余管理并没有发挥中介作用,即频繁并购重组企业操纵利润的手段倾向于采用真实盈余管理,而非应计盈余管理。     

Do retail mergers affect competition? Evidence from grocery retailing

This study estimates the price effects of horizontal mergers in the U.S. grocery retailing industry. We examine fourteen regions affected by mergers, including mergers in highly concentrated and relatively unconcentrated markets. We identify price effects by comparing markets affected by mergers to unaffected markets using difference‐in‐difference estimation with three different comparison groups, propensity score weights, and by using the synthetic control method. Our results are robust to the choice of control group and estimation technique. We find that mergers in highly concentrated markets are most frequently associated with price increases, and mergers in less concentrated markets are most often associated with price decreases.     

Bertrand competition with capacity constraints: mergers among parking lots

To analyze the effects of mergers among firms facing capacity constraints, we develop a numerical model of price-setting behavior among multi-product firms differentiated by location and capacity. We perform a number of computational experiments designed to inform merger policy, with specific reference to the Central Parking–Allright merger of 1999. The experiments show that capacity constraints on merging firms attenuate merger effects by much more than capacity constraints on non-merging firms amplify them. The experiments also highlight the dependence of merger welfare effects on parking demand. In preparation for further industry consolidation, we propose estimators of parking demand to more precisely estimate the costs and benefits of future mergers.     

Competing Research Joint Ventures

Research and development (R&D) competition among firms has recently been extended to R&D competition involving research joint ventures. It was previously shown that in an industry conducting cost-reducing R&D followed by competition in the product market, if all firms both fully share R&D information and coordinate investments to maximize pint profits, final products prices are lower, and firms' profits are higher than with information shriving alone, joint profit maximization alone, or no cooperation. In this paper we question whether a single research joint venture (RJV) cartel is the best form of industry R&D coordination. We show that there are circumstances in which splitting a single RJV cartel into several competing ones yields lower product prices. Moreover, we show that in these circumstances, splitting the industry into exactly two competing RJV cartels would be best.     

An econometric approach to estimating support prices and measures of productivity change in public hospitals

In industry sectors where market prices for goods and services are unavailable, it is common to use estimated output and input distance functions to estimate rates of productivity change. It is also possible, but less common, to use estimated distance functions to estimate the normalised support (or efficient) prices of individual inputs and outputs. A problem that arises in the econometric estimation of these functions is that more than one variable in the estimating equation may be endogenous. In such cases, maximum likelihood estimation can lead to biased and inconsistent parameter estimates. To solve the problem, we use linear programming to construct a quantity index. The distance function is then written in the form of a conventional stochastic frontier model where the explanatory variables are unambiguously exogenous. We use this approach to estimate productivity indexes, measures of environmental change, levels of efficiency, and support prices for a sample of Australian public hospitals.