Do low search costs facilitate like-buys-like mergers? Evidence from common bank networks1

Jiakai Chen, Joon Ho Kim and S. Ghon Rhee

Journal of Financial Economics, 2021, vol. 140, issue 2, 484-513

Abstract: We examine how search frictions affect merger outcomes. Exploiting firm connections in common bank networks (CBNs) as a channel for reducing search costs, we show that like-buys-like mergers are more probable between firms connected through a CBN. This effect is amplified if the connection has been recently formed or the network contains many plausible choices for merger partners. CBN-facilitated mergers exhibit higher synergy and lower post-merger cost of debt. We confirm that CBNs reduce search costs even after alternative explanations are considered. These findings highlight the importance of search in the process of redrawing firm boundaries.

Keywords: Search costs; Common bank network; Asset complementarity; Like-buys-like mergers; Synergy (search for similar items in EconPapers)
JEL-codes: G21 G24 G34 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:2:p:484-513

DOI: 10.1016/j.jfineco.2020.12.002

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