Horizontal mergers and heterogeneous firm investments: evidence from the United States

Dongxu Li

Journal of Empirical Finance, 2024, vol. 75, issue C

Abstract: I find on average firms respond to a horizontal merger by investing less in PP&E, labor, and R&D. There is notable heterogeneity among the non-merging rivals. The laggard rivals reduce investments in PP&E, labor, and R&D while the neck-and-neck rivals do the opposite. There is an insignificant change for the leader rivals. These results support Aghion et al. (2005) on the inverted-U relationship between competition and innovation. Also, I show evidence that financial constraints and innovativeness are two factors that drive rivals’ heterogeneous responses. This empirical study sheds light upon the pattern in which horizontal mergers shape industry evolvement.

Keywords: Horizontal mergers; Investments; Innovativeness; Rival heterogeneity (search for similar items in EconPapers)
JEL-codes: G31 G34 L41 O32 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:75:y:2024:i:c:s0927539823001317

DOI: 10.1016/j.jempfin.2023.101464

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