The Worst of Both Worlds: Megamergers are Anticompetitive and Inefficient

There is no consensus in the literature regarding the financial consequences of megamergers in part due to the difficulty in establishing a good counterfactual. By comparing the performance of these deals to the performance of synthetic mergers constructed using a novel matching procedure, we find no significant changes in return on assets after megamergers. This apparent non-result is driven by merged firms subsidizing their increased operating inefficiencies with higher markups. We show that this cross-subsidization effect is stronger in larger deals and in more concentrated industries, suggesting that our findings are driven by market power and quiet life considerations.

Keywords: Mergers and Acquistions; Megamergers; Merger Gains

JEL Classification: C51; G34

Suggested Citation: Suggested Citation

Butler, Alexander W. and Grullon, Gustavo and Lattanzio, Gabriele, The Worst of Both Worlds: Megamergers are Anticompetitive and Inefficient (July 13, 2019). SMU Cox School of Business Research Paper No. 19-9, Available at SSRN: https://ssrn.com/abstract=3419538 or http://dx.doi.org/10.2139/ssrn.3419538