The Influence of Industry Concentration on Merger Motives: Empirical Evidence from the Machinery Industry
EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Finance and Accounting
November 30, 2008
By linking industrial organization theory and capital market research, we provide empirical evidence that merger motives of firms are influenced by their prevailing industry concentration. We analyze wealth effects on target, acquiring and rival firms for 330 transactions in the machinery industry between 1997 and 2007. We show that mergers in concentrated industries are primarily motivated to achieve productive efficiency gains. This seems surprising, as we rather expect monopolistic collusion motives. For fragmented industries, on the other hand, we observe both productive efficiency and monopolistic collusion motives for firm mergers. In the absence of wealth transfers there seems to be no indication for agency problems. Our findings suggest that the traditional research on merger motives falls short by not considering structural market differences in the form of industry concentration.
Keywords: Industry concentration, Merger Motive, Event study, M&A
JEL Classification: G14, G34
Date posted: February 16, 2009