What Do We Know about Success and Failure of Mergers?

Collecting the most important results of about 80 empirical merger studies, this study condenses the bewildering spectrum of results to 18 stylized facts. Most important, no more than a quarter of the mergers increase consumer welfare; another quarter increase profits at the cost of consumers; half of the mergers reduce the value of the firm. Targets' shareholders win, while bidders' shareholders break even upon the announcement of a merger, but lose significantly in the long run. Seen relatively, horizontal mergers fare best, especially if they are focus-increasing. Cash-financed mergers fare better than stock-financed and strategic mergers fare better than financial ones. Confronting the stylized facts with existing merger theory reveals some major paradoxes; confronting them with existing competition policy reveals the need for a modification and intensification, as mergers increase concentration, and corporate policy strives towards still higher concentration. As a summary ten lessons are extracted on what we may have learnt, and on what is still open.     

Hedge-Fonds: Risiken für die internationalen Finanzmärkte?

Die Ungleichgewichte auf den internationalen Finanzm?rkten werden von den Finanzministern und Notenbankchefs der Industriel?nder mit zunehmendem Unbehagen betrachtet. In Hinblick auf Hedge-Fonds soll bis zum G-8-Gipfel im Juni dieses Jahres ein Verhaltenskodex erarbeitet werden. Inwieweit k?nnen Hedge-Fonds zur Instabilit?t der Finanzm?rkte beitragen? Welche Strategien zur Krisenvermeidung sollten verfolgt werden? Welche Institutionen sollten aktiv werden? Die Autoren unseres Zeitgespr?chs: Prof. Dr. Ralf-M. Marquardt, 45, lehrt Volkswirtschaftslehre und quantitative Methoden an der FH-Gelsenkirchen, Abteilung Recklinghausen. Prof. Dr. Carsten Hefeker, 43, lehrt Volkswirtschaftslehre, insbesondere Europ?ische Wirtschaftspolitik an der Universit?t Siegen. Prof. Dr. Gunther Schnabl, 40, ist Direktor des Instituts für Wirtschaftspolitik an der Universit?t Leipzig; Andreas Hoffmann, 26, Dipl.-Volkswirt, ist dort wissenschaftlicher Mitarbeiter.     

Reply to Professor Yongding Yu

We are indebted to Professor Yu for his careful reading of our paper, and are pleased that he sympathizes with our argument that controls on purely financial capital inflows should not be relaxed so long as world interest rates remain unduly low. We agree that direct ＂real＂ investments into, and increasingly out of, China＇s economy need not be limited. These direct investment flows are now more or less balanced, without threatening a loss of monetary control by the People＇s Bank of China （PBC）.     

Einige absorptionstheoretische Überlegungen zum österreichischen Leistungsbilanzdefizit

Summary The study explains the Austrian current account deficit in terms of a modified and disaggregated absorption approach. In small integrated countries absorption depends not an internal demand alone but on the difference of capacity utilisation at home and abroad. Disaggregation suggests that in years of increasing current account deficits households normally increase their net—saving while entrepreneus increase their net—indebtedness less than proportionally. It is the government which as a rule has high absorption during current account deficits. Since the government demands only few foreign goods, this correlation must be explained indirectly. Four mechanisms are suggested: First that budget deficits increase overall domestic capacity utilisation relative to that of the trade partners and so stimulate imports and restrain exports; secondly: The budget deficit may sustain full employment even if the economy has lost its international competitiveness; thirdly: An oversized public demand diverts capacities from the export industry, or fourthly: The foreign financing of budget deficits leads to a real transfer within a short time. A brief discussion of the Austrian situation attaches most weight to mechanisms one and two, a little less to point four.

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Überarbeitete Fassung eines Referates im Rahmen des Workshop Zahlungsbilanz im Österreichischen Institut für Wirtschaftsforschung am 14. Juni 1977. Der Autor dankt den Teilnehmern des Workshop, insbesonders Dr.H. Handler, Professor Dr.K. Rothschild und Professor Dkim.H. Seidel für wertvolle Anregungen.     

Zur Bestimmung einer internationalen Liquiditätsfunktion

Ohne ZusammenfassungAls dieses Manuskript schon gesetzt war, entdeckte ich, daß etliche Gedanken in dem jüngsten Buch von F. Machlup: International Payments, Debts and Gold, New York 1964, vorweggenommen wurden (Kapitel XII: The Fuzzy Concepts of Liquidity, International and Domestic; Kapitel XIII: Further Reflections on the Demand for Foreign Reserves). Beide wurden zwar schon 1962 in dem Bulletin der belgischen Notenbank auszugsweise veröffentlicht, blieben mir aber leider unbekannt. Ihre Berücksichtigung war zu diesem späten Zeitpunkt nicht mehr möglich.     

What Do We Know about Success and Failure of Mergers?—Rejoinder

Responding to the comments of Coscelli, Lyons and Weston, I argue: (1) The aim of my paper was not primarily to discuss recent competition policy, but to extract stylized facts and compare them to theory; (2) utilizing all empirical merger studies published in refereed journals, instead of only the sound ones, does not appear to influence the results; (3) economies to scale—and consequently endogenous merger motives—are of less importance for mergers dealt with by the competition authorities; (4) a post-merger number of competitors of less than four to five steeply raises the likelihood of tacit collusion and conscious parallelism; (5) concentration is already high and still increasing in quite a number of markets; (6) mergers in network sectors are more dangerous than in manufacturing, as the number of potential competitors is small in most cases; (7) I agree with my critics that strictly banning the critical categories of mergers may be too harsh; I still hold, however, that competition authorities should take account of these critical types in a more formal way (e.g. by merger rules).     

Learning to live with complexity

Business life has always featured the unpredictable, the surprising, and the unexpected. But in today's hyperconnected world, complexity is the norm. Systems that used to be separate are now intertwined and interdependent, and knowing the starting conditions is no guide to predicting outcomes; too many continuously changing interactive elements are in play. Managers looking to navigate these difficulties need to adopt new approaches. They should drop outmoded forecasting tools-for example, ones that rely on averages, which are often less important than outliers. Instead, they should use models that simulate the behavior of the system. They should also make sure that their data include a good amount of future-oriented information. Risk mitigation is crucial as well. Managers should minimize the need to rely on predictions-for instance, they can give users a say in product design. They can decouple elements in a system and build in redundancy to minimize the consequences of a partial system failure, and turn to outside partners to extend their own company's capabilities. They can complement hard analysis with "soft" methods such as storytelling to make potentially important future possibilities more real. And they can make trade-offs that keep early failures small and provide the diversity of thought needed in a nimble organization faced with complexity on virtually every front.