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Competitive Impact of Strategic Restructuring: Evidence from the Telecommunications Industry

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  • Hertzel, Michael
  • Smith, Janet Kiholm
  • Smith, Richard L

Abstract

Stock market evidence can provide insights into how firms in rapidly changing markets design and implement strategies. The failed merger attempt of Bell Atlantic and TCI serves as a case study for examining the effects of strategic choices on firms in the telecommunications industry. The paper documents the varying strategies of the seven regional Bell operating companies (RBOCs) and analyzes the stock price reactions of industry participants to the proposed merger and its termination in the context of these differing strategic orientations. Results reveal that the announcement of the merger generated significant spillover effects for other cable and local telephone companies as well as for other industry participants. We use the reactions to test hypotheses regarding the rationale for the merger proposal and the reasons for its demise. Stock price reactions to the proposal were significantly more positive for the three RBOCs that had committed to strategic approaches similar to Bell Atlantic's than for the other three RBOCs. However, reactions to the termination indicate that investors viewed the hierarchical organizational strategy of Bell Atlantic as less desirable than those being pursued by other Bell companies. Copyright 2001 by Oxford University Press.

Suggested Citation

  • Hertzel, Michael & Smith, Janet Kiholm & Smith, Richard L, 2001. "Competitive Impact of Strategic Restructuring: Evidence from the Telecommunications Industry," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 10(1), pages 207-246, March.
    • Handle: RePEc:oup:indcch:v:10:y:2001:i:1:p:207-46
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    Cited by:

    1. Gadhia, Hitesh K. & Kotzab, Herbert & Prockl, Günter, 2011. "Levels of internationalization in the container shipping industry: an assessment of the port networks of the large container shipping companies," Journal of Transport Geography, Elsevier, vol. 19(6), pages 1431-1442.
    2. Aktas, Nihat & de Bodt, Eric & Roll, Richard, 2013. "MicroHoo: Deal failure, industry rivalry, and sources of overbidding," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 20-35.
    3. Huyghebaert, Nancy & Luypaert, Mathieu, 2010. "Value Creation and Division of Gains in European Horizontal Acquisitions: The Role of Industry Conditions," Working Papers 2010/06, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

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