Competitive Strategy in Mergers and Acquisitions

Abstract

This paper uses mergers and acquisitions (M&A) and textual analysis of firms' financial filings to show that competitive strategy constitutes an important determinant of firms' investment decisions. The analysis reveals that becoming an acquirer or a target depends on the strategy. Moreover, M&A deals are more likely between companies implementing the same strategy. Those deals yield higher combined announcement returns, asset and sales growth. The same strategy effect is stronger in a highly competitive environment and within an industry, suggesting that acquirer and target strategic misalignment constraints the optimal response to investment opportunities and market threats.

Keywords: mergers and acquisitions, strategy, synergies, product life-cycle, competition, textual analysis

JEL Classification: L21, G34, M21