The Worst of Both Worlds: Megamergers are Anticompetitive and Inefficient

51 Pages Posted: 15 Jul 2019 Last revised: 4 Sep 2019

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Gabriele Lattanzio

Southern Methodist University (SMU) - Finance Department

Date Written: July 13, 2019

Abstract

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

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

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Gabriele Lattanzio (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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