Product Market Synergies and Competition in Mergers and Acquisitions: A Text-Based Analysis / Gerard Hoberg, Gordon M. Phillips.

Format:

Book

Author/Creator:

Hoberg, Gerard.

Contributor:

National Bureau of Economic Research.

Phillips, Gordon M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14289.

NBER working paper series no. w14289

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals.

Notes:

Print version record

August 2008.