The Product Market Impact of Minority Stake Acquisitions
60 Pages Posted: 27 Nov 2012 Last revised: 7 Sep 2013
Date Written: September 6, 2013
We show that partial equity ownership between rival firms has a significant impact on industry competition. Industry-level tests indicate that acquisitions of a minority stake in competing firms’ equity are followed by higher output prices and higher price-cost margins, particularly in industries with high barriers to entry. Stock price reactions of non-participating competitors and of customer firms reflect the increase in industry prices and profit margins. Announcement returns of competitors of the acquirer and target are positive while announcement returns of customer firms are negative. Moreover, the positive (negative) stock-price reaction of competitors (customers) is more pronounced when the acquirer and target are larger firms with a greater market share. These results indicate that equity ownership of rival firms reduces industry competition.
Keywords: partial equity acquisition, product market competition, market power
JEL Classification: G32, G34, L11, L41
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