IDEAS home Printed from https://ideas.repec.org/a/spr/jecfin/v38y2014i1p27-52.html
   My bibliography  Save this article

The influence of industry concentration on merger motives—empirical evidence from machinery industry mergers

Author

Listed:
  • Florian Geiger
  • Dirk Schiereck

Abstract

By linking industrial organization theory and capital market research, we provide empirical evidence that merger motives of firms are influenced by underlying industry concentration. Analyzing wealth effects on target, acquirer and rival firms in the machinery industry, we observe significant different capital market reactions among merger announcements in dependence of underlying industry concentration. suggesting that different takeover motives prevail in fragmented and concentrated industries. In contrast to previous studies, we find besides efficiency motives evidence for monopolistic collusion motives in fragmented industries. Mergers in concentrated industries are primarily motivated to achieve productive efficiency gains. The absence of collusion motives may be an indication for a successful enforcement of antitrust legislation. Our results suggest that the magnitude of the influence of industry concentration in empirical merger motive research may have been previously under-estimated leading to a potential distortion of results. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Florian Geiger & Dirk Schiereck, 2014. "The influence of industry concentration on merger motives—empirical evidence from machinery industry mergers," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(1), pages 27-52, January.
    • Handle: RePEc:spr:jecfin:v:38:y:2014:i:1:p:27-52
    DOI: 10.1007/s12197-011-9202-y
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s12197-011-9202-y
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s12197-011-9202-y?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. Randolph B. Cohen & Christopher Polk & Tuomo Vuolteenaho, 2003. "The Value Spread," Journal of Finance, American Finance Association, vol. 58(2), pages 609-641, April.
    2. 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.
    3. Sayan Chatterjee, 1986. "Types of synergy and economic value: The impact of acquisitions on merging and rival firms," Strategic Management Journal, Wiley Blackwell, vol. 7(2), pages 119-139, March.
    4. Patell, Jm, 1976. "Corporate Forecasts Of Earnings Per Share And Stock-Price Behavior - Empirical Tests," Journal of Accounting Research, Wiley Blackwell, vol. 14(2), pages 246-276.
    5. 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.
    6. Harrington, Scott E. & Shrider, David G., 2007. "All Events Induce Variance: Analyzing Abnormal Returns When Effects Vary across Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(1), pages 229-256, March.
    7. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
    8. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
    9. Catherine J. Morrison Paul, 2003. "Cost Economies: A Driving Force for Consolidation and Concentration?," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 110-127, July.
    10. James L. Davis & Eugene F. Fama & Kenneth R. French, 2000. "Characteristics, Covariances, and Average Returns: 1929 to 1997," Journal of Finance, American Finance Association, vol. 55(1), pages 389-406, February.
    11. David J. Denis & Diane K. Denis & Keven Yost, 2002. "Global Diversification, Industrial Diversification, and Firm Value," Journal of Finance, American Finance Association, vol. 57(5), pages 1951-1979, October.
    12. Aloke Ghosh, 2004. "Increasing Market Share as a Rationale for Corporate Acquisitions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1‐2), pages 209-247, January.
    13. Jean Helwege & Christo Pirinsky & René M. Stulz, 2007. "Why Do Firms Become Widely Held? An Analysis of the Dynamics of Corporate Ownership," Journal of Finance, American Finance Association, vol. 62(3), pages 995-1028, June.
    14. Eckbo, B Espen & Wier, Peggy, 1985. "Antimerger Policy under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 119-149, April.
    15. Ming Dong & David Hirshleifer & Scott Richardson & Siew Hong Teoh, 2006. "Does Investor Misvaluation Drive the Takeover Market?," Journal of Finance, American Finance Association, vol. 61(2), pages 725-762, April.
    16. Kewei Hou & David T. Robinson, 2006. "Industry Concentration and Average Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1927-1956, August.
    17. 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.
    18. 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.
    19. repec:bla:jindec:v:45:y:1997:i:4:p:377-86 is not listed on IDEAS
    20. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    21. Cornett, Marcia Millon & McNutt, Jamie John & Tehranian, Hassan, 2006. "Performance Changes around Bank Mergers: Revenue Enhancements versus Cost Reductions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1013-1050, June.
    22. Curry, B & George, K D, 1983. "Industrial Concentration: A Survey," Journal of Industrial Economics, Wiley Blackwell, vol. 31(3), pages 203-255, March.
    23. Slade, Margaret E., 2004. "Competing models of firm profitability," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 289-308, March.
    24. Fee, C. Edward & Thomas, Shawn, 2004. "Sources of gains in horizontal mergers: evidence from customer, supplier, and rival firms," Journal of Financial Economics, Elsevier, vol. 74(3), pages 423-460, December.
    25. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    26. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    27. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 285-331, May.
    28. repec:bla:jfinan:v:58:y:2003:i:2:p:609-642 is not listed on IDEAS
    29. Aloke Ghosh, 2004. "Increasing Market Share as a Rationale for Corporate Acquisitions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(1-2), pages 209-247.
    30. Seyhun, H Nejat, 1990. "Do Bidder Managers Knowingly Pay Too Much for Target Firms?," The Journal of Business, University of Chicago Press, vol. 63(4), pages 439-464, October.
    31. Berkovitch, Elazar & Narayanan, M. P., 1993. "Motives for Takeovers: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(3), pages 347-362, September.
    32. Piero Morosini & Scott Shane & Harbir Singh, 1998. "National Cultural Distance and Cross-Border Acquisition Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 137-158, March.
    33. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    34. Shahrur, Husayn, 2005. "Industry structure and horizontal takeovers: Analysis of wealth effects on rivals, suppliers, and corporate customers," Journal of Financial Economics, Elsevier, vol. 76(1), pages 61-98, April.
    35. Stillman, Robert, 1983. "Examining antitrust policy towards horizontal mergers," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 225-240, April.
    36. M. Mark Walker, 2000. "Corporate Takeovers, Strategic Objectives and Acquring Firm Shareholder Wealth," Financial Management, Financial Management Association, vol. 29(1), Spring.
    37. Hirschey, Mark, 1985. "Market Structure and Market Value," The Journal of Business, University of Chicago Press, vol. 58(1), pages 89-98, January.
    38. Friedrich Trautwein, 1990. "Merger motives and merger prescriptions," Strategic Management Journal, Wiley Blackwell, vol. 11(4), pages 283-295, May.
    39. Andres Almazan & Carlos A. Molina, 2005. "Intra‐Industry Capital Structure Dispersion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 263-297, June.
    40. Ralph A. Walkling & Michael S. Long, 1984. "Agency Theory, Managerial Welfare, and Takeover Bid Resistance," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 54-68, Spring.
    41. 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.
    42. Andrade, Gregor & Stafford, Erik, 2004. "Investigating the economic role of mergers," Journal of Corporate Finance, Elsevier, vol. 10(1), pages 1-36, January.
    43. Azzeddine M. Azzam, 1997. "Measuring Market Power and Cost‐efficiency Effects of Industrial Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 377-386, December.
    44. Peter MacKay & Gordon M. Phillips, 2005. "How Does Industry Affect Firm Financial Structure?," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1433-1466.
    45. Richard P. Rumelt, 1991. "How much does industry matter?," Strategic Management Journal, Wiley Blackwell, vol. 12(3), pages 167-185, March.
    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. Worek, Maija & De Massis, Alfredo & Wright, Mike & Veider, Viktoria, 2018. "Acquisitions, disclosed goals and firm characteristics: A content analysis of family and nonfamily firms," Journal of Family Business Strategy, Elsevier, vol. 9(4), pages 250-267.
    2. Zhiqi Chen & Gang Li, 2018. "Do Merger Efficiencies Always Mitigate Price Increases?," Journal of Industrial Economics, Wiley Blackwell, vol. 66(1), pages 95-125, March.
    3. Tianxu Jiang & Min Zhu, 2021. "The impact of innovation on companies’ cross-border mergers and acquisitions: evidence from China," Quality & Quantity: International Journal of Methodology, Springer, vol. 55(3), pages 969-991, June.
    4. Pilar López-Delgado & Julio Diéguez-Soto & María J. Martínez-Romero & Teresa Mariño-Garrido, 2024. "Acquisition activity: do firm age and family control matter?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 14(2), pages 447-473, June.
    5. Mittal, Amit & Garg, Ajay Kumar, 2017. "Private information implications for acquirers and targets in horizontal mergers," MPRA Paper 85355, University Library of Munich, Germany.
    6. Mittal, Amit & Garg, Ajay Kumar, 2017. "Why do acquirers prefer M&A? Evidence from Banks in India," MPRA Paper 85354, University Library of Munich, Germany.
    7. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2020. "Evaluating the price effects of two airline mergers in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 141(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. Neelam Rani & Surendra S Yadav & P.K. Jain, 2015. "Impact of Mergers and Acquisitions on Shareholders’ Wealth in the Short Run: An Event Study Approach," Vikalpa: The Journal for Decision Makers, , vol. 40(3), pages 293-312, September.
    2. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    3. Eckbo, B. Espen, 2009. "Bidding strategies and takeover premiums: A review," Journal of Corporate Finance, Elsevier, vol. 15(1), pages 149-178, February.
    4. Song, Moon H. & Walkling, Ralph A., 2005. "Anticipation, Acquisitions and Bidder Returns," Working Paper Series 2005-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    5. Kanungo, Rama Prasad, 2021. "Uncertainty of M&As under asymmetric estimation," Journal of Business Research, Elsevier, vol. 122(C), pages 774-793.
    6. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    7. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    8. Fangming Xu & Huainan Zhao, 2013. "Three-Way Takeovers," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(1), pages 67-90, January.
    9. Mateev, Miroslav & Andonov, Kristiyan, 2016. "Do cross-border and domestic bidding firms perform differently? New evidence from continental Europe and the UK," Research in International Business and Finance, Elsevier, vol. 37(C), pages 327-349.
    10. 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).
    11. Renneboog, Luc & Vansteenkiste, Cara, 2019. "Failure and success in mergers and acquisitions," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 650-699.
    12. Shahrur, Husayn, 2005. "Industry structure and horizontal takeovers: Analysis of wealth effects on rivals, suppliers, and corporate customers," Journal of Financial Economics, Elsevier, vol. 76(1), pages 61-98, April.
    13. Bhagat, Sanjai & Dong, Ming & Hirshleifer, David & Noah, Robert, 2005. "Do tender offers create value? New methods and evidence," Journal of Financial Economics, Elsevier, vol. 76(1), pages 3-60, April.
    14. Yang Zhang, 2018. "Corporate Governance Effects on Risk Management and Shareholder Wealth: The Case of Mergers and Acquisitions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4-2018, January-A.
    15. Jozsef Molnar, 2002. "Preemptive Horizontal Mergers: Theory and Evidence," CERS-IE WORKING PAPERS 0213, Institute of Economics, Centre for Economic and Regional Studies.
    16. 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.
    17. Alexandridis, George & Fuller, Kathleen P. & Terhaar, Lars & Travlos, Nickolaos G., 2013. "Deal size, acquisition premia and shareholder gains," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 1-13.
    18. Moshfique Uddin & Agyenim Boateng, 2009. "An analysis of short‐run performance of cross‐border mergers and acquisitions," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(4), pages 431-453, October.
    19. Mamun, Abdullah & Mishra, Dev & Zhan, Lei, 2021. "The value of intangible capital transfer in mergers," Journal of Economics and Business, Elsevier, vol. 117(C).
    20. Alexandridis, G. & Antypas, N. & Travlos, N., 2017. "Value creation from M&As: New evidence," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 632-650.

    More about this item

    Keywords

    Industry Concentration; Merger Motive; Event Study; M&A; G14; G34;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    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:spr:jecfin:v:38:y:2014:i:1:p:27-52. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.