Product Integration and Merger Success
47 Pages Posted: 16 Mar 2017 Last revised: 26 Aug 2018
Date Written: August 25, 2018
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
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