Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis
University of Southern California - Marshall School of Business
Gordon M. Phillips
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
February 24, 2010
We examine how product similarity and competition influence mergers and acquisitions and the ability of firms to exploit product market synergies through asset complementarities. Using novel text-based analysis of firm 10-K product descriptions, we find three key results. (1) Firms are more likely to enter mergers with firms whose language describing their assets is similar. (2) Transactions in competitive product markets with similar acquirer and target firms experience increased stock returns and real longer-term gains in cash flows and higher growth in their product descriptions. (3) These gains are higher when the target is less similar to the acquirer's closest rivals, and when firms have the potential for unique products. Our findings are consistent with firms merging and buying assets to exploit synergies and to create new products to increase product differentiation.
Number of Pages in PDF File: 48
Keywords: Mergers, Product Markets, Text Analysis, Merger Strategies
Date posted: August 7, 2008 ; Last revised: August 18, 2011
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