Mergers are good news for investors

June 5, 2018, University of Waterloo

Shareholder value and market share improve when companies merge, confirms a new study from the University of Waterloo.

The study also found that the new company's ended up being greater than the share of the two merged companies combined.

"The increase in firm value post- may be chiefly attributable to improved efficiencies as opposed to market power," said Anindya Sen, co-author and professor of economics at the University of Waterloo. "Firms are realizing synergies from mergers which benefit all stakeholders. Consumers are not necessarily paying higher prices, and investors are gaining through holding the stocks of such in their financial portfolios."

For the study, Sen and lead author Mahdiyeh Entezarkheir, professor of economics at Huron College, Western University, compiled data from multiple sources for more than 5,000 publicly traded U.S. manufacturing companies from 1980-2003, including financial information and patents. The dataset is unique because it included information on companies over an extended period of time including before, during and after the merger. The data allowed the researchers to compare and contrast merged entities to firms that didn't merge and rule out any industry-wide influences.

Previous studies often focused on a single firm or a shorter timeframe, and often yielded mixed results about whether mergers made companies significantly more productive and profitable.

"We often see firms such as Loblaws and Shoppers Drug Mart merge under the assumption that mergers create value. However, empirical evidence on merger effects across industries was limited because it's so hard to assemble and construct the required dataset," said Sen. "Our research offers some robust evidence and clarity on how firms benefit from mergers in terms of and market share."

These results may also be helpful for antitrust authorities for their merger assessments, wrote the researchers.

The study, "Market value, market share, and mergers: Evidence from a panel of U.S. firms", appeared in Managerial and Decision Economics.

Explore further: UK supermarket giant Sainsbury says in merger talks with Asda

Related Stories

Don't forget the customers after mergers

January 29, 2014

(Phys.org) —Merging companies that focus on a dual-goal emphasis of simultaneously enhancing efficiency and customer satisfaction show the highest increase in long-term financial performance, according to a new study from ...

Recommended for you

Study casts new light on fishing throughout history

November 12, 2018

A new study from The Australian National University (ANU) has revealed new insights into ancient fishing throughout history, including what type of fish people were regularly eating as part of their diet.

A toast to the proteins in dinosaur bones

November 9, 2018

Burnt toast and dinosaur bones have a common trait, according to a new, Yale-led study. They both contain chemicals that, under the right conditions, transform original proteins into something new. It's a process that may ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.