Propagation in Production Networks: the Spillover of Mergers and Acquisitions
42 Pages Posted: 22 Jun 2020 Last revised: 24 May 2021
Date Written: November 20, 2020
This paper proposes an empirical method to identify the ﬁrm-level propagation of volatilities sourcing from endogenous events and tracks its paths in production networks. We investigate how mergers and acquisitions (M&As) spill over from the target ﬁrms to their peers (i.e., ﬁrms that share common suppliers/customers with the targets). After M&As, peers of the target ﬁrm experience an average increase in sales by 1.4%. Decomposition of the propagation reveals its trajectory: the common supplier channel carries most of the propagation. While the downstream channel is negligible since it is attenuated by the elasticity of substitution between target ﬁrm and its peers.
Keywords: Mergers/Acquisitions, Production Network, Propagation
JEL Classification: E32, G34, L14
Suggested Citation: Suggested Citation