IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v73y2022ics0929119922000396.html
   My bibliography  Save this article

Unique bidder-target relatedness and synergies creation in mergers and acquisitions

Author

Listed:
  • Liu, Tingting
  • Lu, Zhongjin (Gene)
  • Shu, Tao
  • Wei, Fengrong

Abstract

Despite the theoretical appeal of the importance of the uniqueness of firm relation in merger synergy creation, empirical evidence supporting this synergy source is limited. We examine the effect of the uniqueness of the bidder-target relationship, i.e., the number of firms that share the bidder-target relationship, on merger synergies. We use machine learning tools to measure unique bidder-target relatedness and find that unique relatedness is associated with a much larger increase in merger synergies than non-unique relatedness. The measure of unique relatedness mostly captures product relatedness, and this measure dominates alternative product relatedness measures in predicting merger synergies. Analysis of the acquirer's post-merger operating performance shows that the unique relatedness creates synergies through enhanced operating efficiency rather than increased investment or revenue.

Suggested Citation

  • Liu, Tingting & Lu, Zhongjin (Gene) & Shu, Tao & Wei, Fengrong, 2022. "Unique bidder-target relatedness and synergies creation in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:corfin:v:73:y:2022:i:c:s0929119922000396
    DOI: 10.1016/j.jcorpfin.2022.102196
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119922000396
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2022.102196?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kai Li & Tingting Liu & Juan (Julie) Wu, 2018. "Vote Avoidance and Shareholder Voting in Mergers and Acquisitions," The Review of Financial Studies, Society for Financial Studies, vol. 31(8), pages 3176-3211.
    2. Isil Erel & Léa H Stern & Chenhao Tan & Michael S Weisbach, 2021. "Selecting Directors Using Machine Learning," NBER Chapters, in: Big Data: Long-Term Implications for Financial Markets and Firms, pages 3226-3264, National Bureau of Economic Research, Inc.
    3. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    4. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, February.
    5. Dirk Jenter & Katharina Lewellen, 2015. "CEO Preferences and Acquisitions," Journal of Finance, American Finance Association, vol. 70(6), pages 2813-2852, December.
    6. Jiahua Chen & Zehua Chen, 2008. "Extended Bayesian information criteria for model selection with large model spaces," Biometrika, Biometrika Trust, vol. 95(3), pages 759-771.
    7. Guanhao Feng & Stefano Giglio & Dacheng Xiu, 2020. "Taming the Factor Zoo: A Test of New Factors," Journal of Finance, American Finance Association, vol. 75(3), pages 1327-1370, June.
    8. Officer, Micah S., 2003. "Termination fees in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 69(3), pages 431-467, September.
    9. Joachim Freyberger & Andreas Neuhierl & Michael Weber & Andrew KarolyiEditor, 2020. "Dissecting Characteristics Nonparametrically," Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2326-2377.
    10. Fu, Fangjian & Lin, Leming & Officer, Micah S., 2013. "Acquisitions driven by stock overvaluation: Are they good deals?," Journal of Financial Economics, Elsevier, vol. 109(1), pages 24-39.
    11. Foucault, Thierry & Gehrig, Thomas, 2008. "Stock price informativeness, cross-listings, and investment decisions," Journal of Financial Economics, Elsevier, vol. 88(1), pages 146-168, April.
    12. Maksimovic, Vojislav & Phillips, Gordon & Prabhala, N.R., 2011. "Post-merger restructuring and the boundaries of the firm," Journal of Financial Economics, Elsevier, vol. 102(2), pages 317-343.
    13. Qi Chen & Itay Goldstein & Wei Jiang, 2007. "Price Informativeness and Investment Sensitivity to Stock Price," The Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 619-650.
    14. Roll, Richard, 1984. "Orange Juice and Weather," American Economic Review, American Economic Association, vol. 74(5), pages 861-880, December.
    15. Robert Tibshirani, 2011. "Regression shrinkage and selection via the lasso: a retrospective," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 73(3), pages 273-282, June.
    16. Becher, David A., 2000. "The valuation effects of bank mergers," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 189-214, July.
    17. Gerard Hoberg & Gordon Phillips, 2016. "Text-Based Network Industries and Endogenous Product Differentiation," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1423-1465.
    18. Matthew Rhodes‐Kropf & David T. Robinson, 2008. "The Market for Mergers and the Boundaries of the Firm," Journal of Finance, American Finance Association, vol. 63(3), pages 1169-1211, June.
    19. Kozak, Serhiy & Nagel, Stefan & Santosh, Shrihari, 2020. "Shrinking the cross-section," Journal of Financial Economics, Elsevier, vol. 135(2), pages 271-292.
    20. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    21. Kai Li & Feng Mai & Rui Shen & Xinyan Yan, 2021. "Measuring Corporate Culture Using Machine Learning," NBER Chapters, in: Big Data: Long-Term Implications for Financial Markets and Firms, pages 3265-3315, National Bureau of Economic Research, Inc.
    22. Erik Devos & Palani-Rajan Kadapakkam & Srinivasan Krishnamurthy, 2009. "How Do Mergers Create Value? A Comparison of Taxes, Market Power, and Efficiency Improvements as Explanations for Synergies," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1179-1211, March.
    23. Offenberg, David & Pirinsky, Christo, 2015. "How do acquirers choose between mergers and tender offers?," Journal of Financial Economics, Elsevier, vol. 116(2), pages 331-348.
    24. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    25. Yuanzhi Luo, 2005. "Do Insiders Learn from Outsiders? Evidence from Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(4), pages 1951-1982, August.
    26. Alex Edmans & Itay Goldstein & Wei Jiang, 2012. "The Real Effects of Financial Markets: The Impact of Prices on Takeovers," Journal of Finance, American Finance Association, vol. 67(3), pages 933-971, June.
    27. Hansen, Robert G, 1987. "A Theory for the Choice of Exchange Medium in Mergers and Acquisitions," The Journal of Business, University of Chicago Press, vol. 60(1), pages 75-95, January.
    28. Goto, Shingo & Xu, Yan, 2015. "Improving Mean Variance Optimization through Sparse Hedging Restrictions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(6), pages 1415-1441, December.
    29. Tor-Erik Bakke & Toni M. Whited, 2010. "Which Firms Follow the Market? An Analysis of Corporate Investment Decisions," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1941-1980.
    30. Audra L. Boone & J. Harold Mulherin, 2007. "How Are Firms Sold?," Journal of Finance, American Finance Association, vol. 62(2), pages 847-875, April.
    31. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
    32. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    33. Bessembinder, Hendrik & Zhang, Feng, 2013. "Firm characteristics and long-run stock returns after corporate events," Journal of Financial Economics, Elsevier, vol. 109(1), pages 83-102.
    34. Mulherin, J. Harold & Boone, Audra L., 2000. "Comparing acquisitions and divestitures," Journal of Corporate Finance, Elsevier, vol. 6(2), pages 117-139, July.
    35. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    36. G. William Schwert, 2000. "Hostility in Takeovers: In the Eyes of the Beholder?," Journal of Finance, American Finance Association, vol. 55(6), pages 2599-2640, December.
    37. Jan Bena & Kai Li, 2014. "Corporate Innovations and Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 69(5), pages 1923-1960, October.
    38. Gregor Andrade & Mark Mitchell & Erik Stafford, 2001. "New Evidence and Perspectives on Mergers," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 103-120, Spring.
    39. Moeller, Sara B. & Schlingemann, Frederik P. & Stulz, Rene M., 2004. "Firm size and the gains from acquisitions," Journal of Financial Economics, Elsevier, vol. 73(2), pages 201-228, August.
    40. Houston, Joel F. & Ryngaert, Michael D., 1994. "The overall gains from large bank mergers," Journal of Banking & Finance, Elsevier, vol. 18(6), pages 1155-1176, December.
    41. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, August.
    42. Albert Sheen, 2014. "The Real Product Market Impact of Mergers," Journal of Finance, American Finance Association, vol. 69(6), pages 2651-2688, December.
    43. Eaton, Gregory W. & Liu, Tingting & Officer, Micah S., 2021. "Rethinking Measures of Mergers & Acquisitions Deal Premiums," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(3), pages 1097-1126, May.
    44. Gerard Hoberg & Gordon Phillips, 2010. "Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3773-3811, October.
    45. Ahern, Kenneth R. & Daminelli, Daniele & Fracassi, Cesare, 2015. "Lost in translation? The effect of cultural values on mergers around the world," Journal of Financial Economics, Elsevier, vol. 117(1), pages 165-189.
    46. Kau, James B. & Linck, James S. & Rubin, Paul H., 2008. "Do managers listen to the market?," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 347-362, September.
    47. Kai Li & Feng Mai & Rui Shen & Xinyan Yan, 2021. "Measuring Corporate Culture Using Machine Learning [Machine learning methods that economists should know about]," The Review of Financial Studies, Society for Financial Studies, vol. 34(7), pages 3265-3315.
    48. Hendrik Bessembinder & Michael J Cooper & Feng Zhang, 2019. "Characteristic-Based Benchmark Returns and Corporate Events," The Review of Financial Studies, Society for Financial Studies, vol. 32(1), pages 75-125.
    49. Philip Bond & Alex Edmans & Itay Goldstein, 2012. "The Real Effects of Financial Markets," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 339-360, October.
    50. Mengmeng Ao & Li Yingying & Xinghua Zheng, 2019. "Approaching Mean-Variance Efficiency for Large Portfolios," The Review of Financial Studies, Society for Financial Studies, vol. 32(7), pages 2890-2919.
    51. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, August.
    52. Lambrecht, Bart M., 2004. "The timing and terms of mergers motivated by economies of scale," Journal of Financial Economics, Elsevier, vol. 72(1), pages 41-62, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Aslam, Faheem & Hunjra, Ahmed Imran & Ftiti, Zied & Louhichi, Wael & Shams, Tahira, 2022. "Insurance fraud detection: Evidence from artificial intelligence and machine learning," Research in International Business and Finance, Elsevier, vol. 62(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    2. M. D. Beneish & C. R. Harvey & A. Tseng & P. Vorst, 2022. "Unpatented innovation and merger synergies," Review of Accounting Studies, Springer, vol. 27(2), pages 706-744, June.
    3. Gu, Ming & Li, Dongxu & Ni, Xiaoran, 2022. "Too much to learn? The (un)intended consequences of RegTech development on mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 76(C).
    4. Wenjing Ouyang & Samuel H. Szewczyk, 2018. "Stock price informativeness on the sensitivity of strategic M&A investment to Q," Review of Quantitative Finance and Accounting, Springer, vol. 50(3), pages 745-774, April.
    5. Andrey Golubov & Dimitris Petmezas & Nickolaos G. Travlos, 2013. "Empirical mergers and acquisitions research: a review of methods, evidence and managerial implications," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 12, pages 287-313, Edward Elgar Publishing.
    6. Chen, Jiakai & Kim, Joon Ho & Rhee, S. Ghon, 2021. "Do low search costs facilitate like-buys-like mergers? Evidence from common bank networks1," Journal of Financial Economics, Elsevier, vol. 140(2), pages 484-513.
    7. Gao, Ning & Peng, Ni & Zhang, Yi, 2021. "Distributive inefficiency in horizontal mergers: Evidence from wealth transfers between merging firms and their customers," International Review of Financial Analysis, Elsevier, vol. 78(C).
    8. John (Jianqiu) Bai & Wang Jin & Matthew Serfling, 2022. "Management Practices and Mergers and Acquisitions," Management Science, INFORMS, vol. 68(3), pages 2141-2165, March.
    9. Chang, Eric C. & Lin, Tse-Chun & Ma, Xiaorong, 2020. "Governance through trading on acquisitions of public firms," Journal of Corporate Finance, Elsevier, vol. 65(C).
    10. Lin, Tse-Chun & Pursiainen, Vesa, 2023. "Social trust distance in mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 149(C).
    11. Dyaran Bansraj & Han Smit & Vadym Volosovych, 2020. "Can Private Equity Funds Act as Strategic Buyers? Evidence from Buy-and-Build Strategies," Tinbergen Institute Discussion Papers 20-041/IV, Tinbergen Institute.
    12. Lee, Kyeong Hun & Mauer, David C. & Xu, Emma Qianying, 2018. "Human capital relatedness and mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 129(1), pages 111-135.
    13. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    14. Li, Xiaoyang, 2013. "Productivity, restructuring, and the gains from takeovers," Journal of Financial Economics, Elsevier, vol. 109(1), pages 250-271.
    15. Saad Alnahedh & Bader Alhashel, 2021. "Political ideology in M&A," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(9-10), pages 1711-1746, October.
    16. Cai, Ye & Sevilir, Merih, 2012. "Board connections and M&A transactions," Journal of Financial Economics, Elsevier, vol. 103(2), pages 327-349.
    17. Aktas, Nihat & Xu, Guosong & Yurtoglu, Burcin, 2018. "She is mine: Determinants and value effects of early announcements in takeovers," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 180-202.
    18. Bonaime, Alice & Gulen, Huseyin & Ion, Mihai, 2018. "Does policy uncertainty affect mergers and acquisitions?," Journal of Financial Economics, Elsevier, vol. 129(3), pages 531-558.
    19. Eaton, Gregory W. & Guo, Feng & Liu, Tingting & Officer, Micah S., 2022. "Peer selection and valuation in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 146(1), pages 230-255.
    20. Debarati Bhattacharya & Wei-Hsien Li, 2020. "Wealth effects of relative firm value in M&A deals: reallocation of physical versus intangible assets," Review of Quantitative Finance and Accounting, Springer, vol. 55(4), pages 1513-1548, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:73:y:2022:i:c:s0929119922000396. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.