The timing of mergers along the production chain,capital structure,and risk dynamics |
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| Institution: | 1. Department of Accounting and Finance, University of Bristol, 8 Woodland Road, Bristol BS8 1TN, UK;2. Xfi Centre for Finance and Investment, University of Exeter, Streatham Court, Rennes Drive, Exeter EX4 4ST, UK;3. Essex Business School, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, UK;1. Toulouse School of Economics, France;2. Copenhagen Business School, Department of Finance, Denmark;3. Strategic Research Department, SSE InfoNet Co. Ltd., Shanghai Stock Exchange, China;1. Department of Economics, University of Haifa, Haifa 31905, Israel;2. Research Department, Federal Reserve Bank Boston, 600 Atlantic Avenue, Boston, MA 02210, USA;1. Deutsche Bundesbank, Financial Stability Department, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany;2. German Institute for Economic Research (DIW Berlin), 10108 Berlin, Germany;3. Humboldt-Universität zu Berlin, Germany;1. Nottingham University Business School, University of Nottingham, NG8 1BB, United Kingdom;2. College of Business, City University of Hong Kong, Kowloon, Hong Kong;1. School of Management, Zhejiang University, Hangzhou, Zhejiang 310058, PR China;2. Department of Management Studies, College of Business, University of Michigan – Dearborn, 19000 Hubbard Drive, Dearborn, Michigan 48126-2638, USA |
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| Abstract: | I demonstrate that the timing of vertical mergers is generally dependent on industry characteristics. My predictions are consistent with empirically observed patterns of vertical mergers. I show that merger activity during economic upturns tends to be motivated by operating efficiencies, while merger activity during economic downturns tends to occur as a means of keeping production chain operational. Mergers allow firms to capture synergies and improve efficiencies in order to survive economic contractions. The pricing framework implies that a vertical merger decision usually reduces risk during two different economic states. |
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| Keywords: | Vertical mergers Real options Risk |
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