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When Do Vertical Mergers Create Value?
Author(s) -
Kedia Simi,
Ravid S. Abraham,
Pons Vicente
Publication year - 2011
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2011.01164.x
Subject(s) - vertical integration , value (mathematics) , asset (computer security) , industrial organization , horizontal and vertical , business , economics , microeconomics , monetary economics , financial economics , computer science , computer security , geodesy , machine learning , geography
This paper studies the market reaction to vertical mergers and explores the many rationales for vertical integration proposed in the industrial organization literature. Abnormal returns for vertical merger announcements are positive until the late 1990s, and turn negative afterward. Acquirers suffer most of the losses. We find support for the most fundamental insight in the industrial organization literature, namely, that vertical mergers generate the greatest value when undertaken in imperfectly competitive markets. We find some evidence to support ideas of asset and site specificity, that is, creating value when market exchange is difficult. We do not find support for information‐based or price uncertainty theories.