Premium
The importance of targets and value creation in vertical acquisitions
Author(s) -
Ekkayokkaya Manapol,
Paudyal Krishna
Publication year - 2021
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12280
Subject(s) - vertical integration , business , value (mathematics) , incentive , industrial organization , productivity , value creation , investment (military) , channel (broadcasting) , monetary economics , enterprise value , microeconomics , economics , finance , computer science , computer network , machine learning , politics , political science , law , macroeconomics
We study how value creation in vertical acquisitions varies in the importance of the target's assets to its acquirer. The synergistic gain increases in the degree of vertical relatedness between the acquirer and target industries. This finding suggests that the importance of the target firm's assets to its acquirer's productivity is an important value‐creating channel in vertical acquisitions. We also find evidence suggesting that acquirers extract greater value as the synergistic gain increases, consistent with an efficient investment incentive underlying the integration decision.