We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Beyond SIC Codes: Mergers of Related Firms.
- Authors
MURDOCK, MARINA; THANH NGO; RICHIE, NIVINE
- Abstract
We apply firm-level relatedness to explain variations in wealth effects, volatility of operating results and stock returns of firms involved in acquisitions. Our results suggest acquirers who target competitor firms or firms in their supply chain whose cash flows are highly correlated with their own are able to achieve shareholder wealth benefits. The correlated cash flows may be explained by shared firm-level management expertise in a horizontal merger or a shared customer base as might be found in a vertical merger. Moreover, the results show that operating cash flow correlation and vertical relatedness, but not horizontal relatedness, explain the decline in operating cash flow volatility post-merger. However, in vertical mergers, firms that exhibit high connectedness scores and high levels of operating cash flow correlations experience less gains in terms of lower cash flow volatility levels postmerger. Finally, our results show that volatility of stock returns and idiosyncratic risk are higher with greater levels of operating cash flow correlations between targets and acquirers, suggesting the presence of a bull whip effect and further suggesting that the limits to operating cash flow volatility changes may be transferred to shareholders.
- Subjects
MERGERS &; acquisitions; INDUSTRY classification; IDIOSYNCRATIC risk (Securities); RATE of return on stocks; CASH flow; STOCKHOLDER wealth; BUSINESS enterprises
- Publication
Quarterly Journal of Finance & Accounting, 2022, Vol 60, Issue 3/4, p1
- ISSN
1939-8123
- Publication type
Article