Buyer Power in Conglomerate Acquisitions
Georgia State University
Tulane University - Department of Finance
We examine buyer power as a source of value creation in conglomerate acquisitions. We find that an increase in buyer power is positively related to the combined wealth effect of merging firms and negatively related to both the wealth effect of supplier firms and acquirer rival firms. We document post-acquisition decreases in both output prices for supplier industries and cogs-to-sales for merging firms. Our results cannot be explained by asset complementarities between merging firms, pre-acquisition declining trends in output prices in supplier industries, or negative demand shocks in acquiring firm industries. Overall, our evidence supports buyer power in conglomerate acquisitions.
Number of Pages in PDF File: 73
Keywords: corporate finance, conglomerate acquisitions, buyer power, product market effects
JEL Classification: G34, L11, L22, L25, D57
Date posted: April 7, 2013 ; Last revised: January 1, 2015
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