Evgeny Lyandres: Merger Synergies Along the Supply Chain.

This paper makes two contributions to the literature examining the effects of mergers on firms' [...]product market rivals, customers, and suppliers. We provide the first analysis of the effect of horizontal merger synergies along the supply chain, by utilizing a novel, hand-collected dataset of insiders' projections of synergies. We find that synergies are an important determinant of the market reactions by rivals, customers, and suppliers of merging firms to horizontal merger announcements. Second, we revisit the empirical literature examining the market power (collusion) motive for horizontal mergers by demonstrating theoretically that omitting a measure of synergies, as in past studies, may lead to biased inferences regarding the effects of market power along the supply chain. Our tests of the market power hypothesis, which account for merger synergies, demonstrate that market power is generally an important determinant of announcement returns to rivals, customers, and suppliers of merging firms. This result stands in sharp contrast to past studies that generally report inconclusive evidence regarding the effects of market power along the supply chain.

Tags: faculty, boston university, research, School of Management, faculty research day

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