Market Optimism and Merger Waves

We argue that stock and bond market booms and merger waves are both driven by increases in optimism in financial markets and discuss two behavioral hypotheses, the managerial discretion and overvaluation hypotheses that claim that merger waves are driven by market optimism. Empirical support for the managerial theory is provided by evidence that the amounts of assets acquired increase as optimism in financial markets increases and that the returns to acquiring companies are inversely related to market optimism at the time of mergers. Our measures of market optimism also explain managerial choices of finance for mergers. Copyright © 2012 John Wiley & Sons, Ltd.     

Corporate growth convergence in Europe*

It is widely believed that the implementation of the SingleMarket Programme in 1992 has induced a transformation in industrialstructures across Europe. Some people believe that it has drivenEurope towards a common industrial structure. However, usinga newly available database covering nearly every firm above100 employees in 14 European countries over the time period1994 to 1998, the hypothesis of convergence in corporate sizeswithin industries is unambiguously rejected by the data. A Gibratprocess best describes the growth of very large and mature firms,but smaller and younger firms depart from this prediction. Pre-post1992 comparisons using another database for larger listed firmsreveal that the speed of convergence actually decreased post-1992.     

Market Concentration and Product Variety under Spatial Competition: Evidence from Retail Gasoline

We show that for a spatially differentiated economy reduced product variety is the likely outcome of mergers except in cases where exit costs in relation to (outlet specific) fixed costs are high. Our empirical analysis of the Austrian retail gasoline market confirms that increases in concentration reduce product variety. Ignoring this product variety effect is likely to lead to an underestimate of market power in structural merger analysis.     

The determinants of rent extraction in the parent-subsidiary relation

A recurring problem in financial development is to understand which poor quality institutions lead to substantial rent extraction by controllers. When rent extraction is high and its extent difficult to predict, outside investment in firms may decline. Recent work has emphasized the quality of the legal system and the overall quality of political institutions as explaining the degree to which rent extraction can occur. Here we exploit a comprehensive parent-subsidiary data-set to shed light on these questions. Using the relation between parent and subsidiary Tobin’s Q to measure the extent of parent companies’ rent extraction from partially-owned subsidiaries, the results indicate that governmental quality, legal origin, rules on self-dealing and political stability all predict the degree of rent extraction.     

Locational choice and price competition: some empirical results for the austrian retail gasoline market

Using data from the Austrian retail gasoline market we find that a higher station density reduces average prices. Market (i.e. ownership) concentration does not significantly affect average price, however is negatively related to the density of stations. Estimation of the pricing and entry equations as simultaneous equations does not alter our conclusions, and suggests causality running from station density to price. We argue that the spatial dimension of markets allows the identification of market conduct, which is particularly relevant for competition policy.