Product Integration and Merger Success

47 Pages Posted: 16 Mar 2017 Last revised: 26 Aug 2018

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: August 25, 2018

Abstract

We examine the importance of firm integration to outcomes of mergers and acquisitions using new ex ante product-based measures of firm integration. Our framework allows us to measure ex ante integration risk for both observed acquisitions and proposed acquisitions that might not materialize. As validation, our ex ante measures predict post-merger 10-K statements by managers indicating difficulties with acquisition integration, and specific complaints about technological and product-based difficulties. Our central finding is that acquirers facing high ex ante product integration risk experience lower ex post sales growth, R&D, capital expenditures, announcement returns and long-term stock returns. The results are consistent with mergers where the acquirer is not well integrated having subsequent problems with R&D and future growth.

Keywords: mergers, integration, innovation, stock returns, product markets, text analysis

Suggested Citation

Hoberg, Gerard and Phillips, Gordon M., Product Integration and Merger Success (August 25, 2018). Tuck School of Business Working Paper No. 2933283; Marshall School of Business Working Paper No. 17-21. Available at SSRN: https://ssrn.com/abstract=2933283 or http://dx.doi.org/10.2139/ssrn.2933283

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Gordon M. Phillips

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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