Research Highlights - July 2018

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A new study from the University of Waterloo confirms that, on average, shareholder value and market share improve when companies merge.  The study, published in the journal Managerial and Decision Economics, also found that the merged company’s market share ended up being greater than the pre-merger market share of the two companies combined.

The increase in shareholder value post-merger may be chiefly attributable to improved efficiencies as opposed to market power.  And firms typically realize synergies from mergers which benefit allstakeholders.  Consumers are not usually paying higher prices, and investors are gaining through holding the stocks of such firms in their financial portfolios.

For the study, the researchers compiled data from multiple sources for more than 5,000 publicly traded U.S. manufacturing companies from 1980-to-2003, including financial information and patents.  The dataset is unique because it included information on companies over an extended period of time, including before, during and after the merger.  The data allowed the researchers to compare-and-contrast merged entities to firms that didn’t merge and rule out any industry-wide influences.

Previous studies often focused on a single firm or a shorter timeframe, and often yielded mixed results about whether mergers made companies significantly more productive and profitable.

We often see firms such as Loblaws and Shoppers Drug Mart merge under the assumption that mergers create value.  However, empirical evidence on merger effects across industries was limited because it’s so hard to assemble and construct the required dataset.  This research offers some robust evidence and clarity on how firms benefit from mergers in terms of market value and market share.

These results may also help antitrust authorities with their merger assessments.


Managerial and Decision Economics, April 17, 2018, “Market Value, Market Share, and Mergers: Evidence from a Panel of U.S. Firms,” by Mahdiyeh Entezarkheir, Anindya Sen.  © 2018 John Wiley & Sons, Inc.  All rights reserved.

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