Do horizontal mergers affect rivals’ cash holdings?

Xiaoxue Hu and Dongxu Li

International Review of Economics & Finance, 2022, vol. 82, issue C, 275-298

Abstract: This paper examines how firms adjust cash holdings following horizontal mergers in the industry. Using a sample of 16,597 horizontal mergers between US firms from 1984 to 2016, we find that in the three-year period following horizontal mergers, the marginal value of cash decreases for the rivals with lower investment opportunities. Rivals with low Tobin's Q reduce cash while the rivals with high Tobin's Q hold more cash. These results suggest that rival firms adjust cash holdings in a pattern that is more consistent with their investment opportunities. We also examine possible explanations for the rivals' cash adjustments and discuss the rivals' competitive pressure following the horizontal mergers.

Keywords: Horizontal merger; Cash; Investment opportunity; Industry competition (search for similar items in EconPapers)
JEL-codes: G31 G34 L41 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:82:y:2022:i:c:p:275-298

DOI: 10.1016/j.iref.2022.06.011

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