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Strategic Similarity in Mergers and Acquisitions

Author

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  • Tina Oreski

    (Swiss Finance Institute)

Abstract

Using textual analysis and the firm life-cycle theory to proxy for a company's competitive strategy, this paper empirically examines the strategic similarity hypothesis. The findings show that merger and acquisition transactions are more likely between firms with the same strategy. Moreover, when the acquirer and the target firm compete based on one strategy, the deal yields higher stock returns and stronger future asset growth. The effect is more pronounced in a highly competitive environment, consistent with the strategic misalignment acting as a constraint to the merged company's optimal response. Overall, the results reveal that synergies obtained from the overlapping strategies constitute an important determinant of public merger and acquisition deals.

Suggested Citation

  • Tina Oreski, 2021. "Strategic Similarity in Mergers and Acquisitions," Swiss Finance Institute Research Paper Series 21-29, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2129
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    More about this item

    Keywords

    mergers and acquisitions; competitive strategy; synergies; firm life-cycle; textual analysis;
    All these keywords.

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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