The Role of Divestitures in Horizontal Mergers: Evidence from Product and Stock Markets

52 Pages Posted: 9 Jan 2018 Last revised: 26 Apr 2018

See all articles by Amrita Nain

Amrita Nain

University of Iowa - Henry B. Tippie College of Business

Yiming Qian

University of Connecticut

Date Written: April 17, 2018

Abstract

In this first large-sample study of merger-related divestitures, we find that divestitures both reduce the market power and affect the competitive efficiency of merging firms. Postmerger output prices are lower when assets are divested, particularly when sold outside the industry. Consistent with this, stock price reactions of customer firms are more positive if merging firms divest assets outside the industry. In contrast, stock price reactions of the acquirer and rivals suggest that firms are more concerned with maintaining a competitive edge. We also find that the results vary based on industry competitiveness.

Keywords: merger and acquisition, divestiture, merger remedy, market power, competitive efficiency, antitrust

JEL Classification: G18, G14, G34

Suggested Citation

Nain, Amrita and Qian, Yiming, The Role of Divestitures in Horizontal Mergers: Evidence from Product and Stock Markets (April 17, 2018). Available at SSRN: https://ssrn.com/abstract=3098324 or http://dx.doi.org/10.2139/ssrn.3098324

Amrita Nain

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

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Yiming Qian (Contact Author)

University of Connecticut ( email )

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Storrs, CT 06269
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