Product market competition, type of mergers, and post-merger performance in Taiwan

Yong-Chin Liu, Hsiang-Ju Chen and Ming-Chang Su

Pacific-Basin Finance Journal, 2017, vol. 46, issue PB, 292-308

Abstract: This paper investigates the effect of product market competition, along with the interaction effect of market competition and the type of mergers and acquisitions (focused or diversified M&As) on an acquirer's post-merger long-term performance. Literature suggests that market competition has the function of disciplining managers and forcing them to operate efficiently. Our main hypotheses are that market competition has a positive effect on post-merger performance only for focused mergers due to the diversification-discount phenomenon, and that diversified mergers may erode the benefits of competition in post-merger performance. Using merger events for Taiwan's listed firms as a sample, the evidence supports our hypotheses, even when considering the endogeneity of market competition and considering only non-electronics events. The discipline derived from market competition tends to be weak across the whole sample. The robustness check confirms the limited positive effect of competition caused by finding a negative relation between acquisition premium and competition only for the focused M&As.

Keywords: Merger and acquisition; Product market competition; Diversified merger; Tobin's q; Cash flow returns (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:46:y:2017:i:pb:p:292-308

DOI: 10.1016/j.pacfin.2017.10.001

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