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The Product Market Impact of Minority Stake Acquisitions

60 Pages Posted: 27 Nov 2012 Last revised: 7 Sep 2013

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Yan Wang

McMaster University

Date Written: September 6, 2013

Abstract

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

Suggested Citation

Nain, Amrita and Wang, Yan, The Product Market Impact of Minority Stake Acquisitions (September 6, 2013). Available at SSRN: https://ssrn.com/abstract=2180996 or http://dx.doi.org/10.2139/ssrn.2180996

Amrita Nain (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Yan Wang

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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