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Do low search costs facilitate like-buys-like mergers? Evidence from common bank networks1

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  • Chen, Jiakai
  • Kim, Joon Ho
  • Rhee, S. Ghon

Abstract

We examine how search frictions affect merger outcomes. Exploiting firm connections in common bank networks (CBNs) as a channel for reducing search costs, we show that like-buys-like mergers are more probable between firms connected through a CBN. This effect is amplified if the connection has been recently formed or the network contains many plausible choices for merger partners. CBN-facilitated mergers exhibit higher synergy and lower post-merger cost of debt. We confirm that CBNs reduce search costs even after alternative explanations are considered. These findings highlight the importance of search in the process of redrawing firm boundaries.

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  • 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.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:2:p:484-513
    DOI: 10.1016/j.jfineco.2020.12.002
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    More about this item

    Keywords

    Search costs; Common bank network; Asset complementarity; Like-buys-like mergers; Synergy;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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