Dynamic Competition, Valuation and Merger Activity

69 Pages Posted: 16 Sep 2010 Last revised: 26 Sep 2011

See all articles by Matthew I. Spiegel

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Heather Tookes

Yale University - Yale School of Management; Yale University - International Center for Finance

Date Written: September 8, 2011

Abstract

We model the interactions between product market competition and investment valuation within a dynamic oligopoly. It is, to our knowledge, the first continuous time corporate finance model in a multiple firm setting with heterogeneous products. The model is tractable and amenable to estimation. We use it to relate current industry characteristics with firm value and financial decisions. Unlike most corporate finance models, it produces predictions regarding parameter magnitudes as well their sign. Estimates of the model’s parameters indicate strong linkages between model-implied and actual values. The paper uses the estimated parameters to predict rivals’ returns near merger announcements.

Suggested Citation

Spiegel, Matthew I. and Tookes, Heather, Dynamic Competition, Valuation and Merger Activity (September 8, 2011). Journal of Finance, Forthcoming . Available at SSRN: https://ssrn.com/abstract=1676789

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)

HOME PAGE: http://som.yale.edu/~spiegel

Heather Tookes (Contact Author)

Yale University - Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

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