On the Patterns and Wealth Effects of Vertical Mergers

Fan, Joseph P. H.; Goyal, Vidhan K.

doi:10.2139/ssrn.296435

On the Patterns and Wealth Effects of Vertical Mergers

EFA 2002 Berlin Meetings Discussion Paper; HKUST Department of Finance Working Paper

36 Pages Posted: 10 Jan 2002

See all articles by Joseph P. H. Fan

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: January 2002

Abstract

We use industry commodity flows information to measure vertical relations for completed mergers during 1962 to 1996. Almost one-third of the mergers display relations that provide opportunities for vertical integration between merging firms. Vertical mergers generate positive wealth effects that are significantly larger compared with those for diversifying mergers; the wealth effects in vertical mergers are comparable to those in pure horizontal mergers. We find a significant, positive co-movement in vertical merger activity and wealth effects, consistent with economy-wide shocks that affect both the incentives for firms to integrate vertically and the resulting efficiency gains from such mergers.

Keywords: Mergers and Acquisitions, Vertical mergers

JEL Classification: G00, G30, G34, L22

Suggested Citation: Suggested Citation

Fan, Po Hung Joseph P. H. and Goyal, Vidhan K., On the Patterns and Wealth Effects of Vertical Mergers (January 2002). EFA 2002 Berlin Meetings Discussion Paper; HKUST Department of Finance Working Paper. Available at SSRN: https://ssrn.com/abstract=296435 or http://dx.doi.org/10.2139/ssrn.296435