Ph.D. Candidate in Finance
Fisher College of Business
The Ohio State University
Empirical Corporate Finance
Product Market Competition
Following horizontal mergers, industry rivals shift from PP&E and labor investments to R&D and advertising investments. Rival firms that shift their investments have greater reductions in operating costs. Moreover, the R&D investment by a segment becomes sensitive to the other segments' investment opportunities, indicating improved efficiency of internal capital markets. Overall, the results indicate that industry rivals improve operating efficiencies to match the merging firms' lower production costs, which is consistent with the efficiency hypothesis of horizontal mergers.
Following horizontal mergers, industry rivals with high Tobin's Q tend to increase cash holdings and investments. This effect is greater for the constrained firms. In contrast, rivals with low Tobin's Q tend to decrease cash holdings and increase payouts. This effect is greater for the liquid firms. These findings suggest that rival firms improve the efficiency of liquidity management in response to horizontal mergers, which is consistent with the efficiency hypothesis of horizontal mergers.
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