Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry

44 Pages Posted: 10 Feb 2015

See all articles by Jeremiah Harris

Jeremiah Harris

Kent State University - College of Business Administration

Ralph Siebert

Purdue University; CESifo

Date Written: January 31, 2015

Abstract

This study investigates the impact of firm-specific discount factors on merger formation and market performance. We estimate firm-specific discount factors for 228 publicly traded and privately held firms operating in the semiconductor market and apply a heterogeneous treatment effects model which accounts for firms’ endogenous selection into mergers, as well as the heterogeneous impact of mergers on the product market. Our study provides evidence that firms’ discount factors explain merger formation and the impact on product market performance. More specifically, we find that acquiring firms characterized by high discount factors (patient firms) merge with efficient and innovative target firms, and achieve high efficiency gains. In contrast, acquiring firms characterized by low discount factors (impatient firms) merge with less innovative target firms, and achieve higher market power effects.

Keywords: discount factor, discount rate, dynamic oligopoly model, market performance, mergers and acquisitions, semiconductor industry

JEL Classification: D240, D430, G340, L130, L220

Suggested Citation

Harris, Jeremiah and Siebert, Ralph, Driven by the Discount Factor: Impact of Mergers on Market Performance in the Semiconductor Industry (January 31, 2015). CESifo Working Paper Series No. 5199. Available at SSRN: https://ssrn.com/abstract=2562256

Jeremiah Harris

Kent State University - College of Business Administration ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

Ralph Siebert (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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