Financial Structure and Mergers

Charles Taragin, Benjamin Wallace () and Eddie Watkins ()
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Charles Taragin: https://www.federalreserve.gov/econres/charles-s-taragin.htm

No 2025-080, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study how corporate debt influences the competitive outcomes of horizontal and conglomerate mergers. In contrast to standard models where debt does not affect pricing, our framework shows that mergers can spread fixed debt obligations across a broader product portfolio, creating an "insurance effect" against adverse demand shocks. This effect interacts with the traditional recapture effect from reduced competition. Using numerical simulations and a case study of a major casino merger, we find that debt can either dampen or amplify post-merger price increases, depending on the merger's structure and the market environment.

Keywords: Financial structure; Merger simulation; Horizontal markets (search for similar items in EconPapers)
JEL-codes: G32 G34 K21 L13 L41 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2025-09-19
New Economics Papers: this item is included in nep-cmp, nep-com and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-80

DOI: 10.17016/FEDS.2025.080

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