Corporate mergers improve shareholder value and market share, new research confirms.
Using data on 5,000 publicly-traded U.S. manufacturing firms between 1980 and 2003, researchers Anindya Sen, professor of economics at the University of Waterloo, in Waterloo, Ont., and Mahdiyeh Entezarkheir, professor of economics at Huron College, Western University, in London Ont., found that “shareholder value and market share improve when companies merge,” the University of Waterloo says in a news release.
Previous studies “often yielded mixed results about whether mergers made companies significantly more productive and profitable,” the university says.
“Empirical evidence on merger effects across industries was limited because it’s so hard to assemble and construct the required dataset,” says Sen in a statement.
Their research is unique, says the university, because it covers an extended period of time, and considers companies before, during, and after mergers.
“The data allowed the researchers to compare and contrast merged entities to firms that didn’t merge and rule out any industry-wide influences,” its says, adding that previous studies typically looked at smaller datasets over shorter time frames.
“Our research offers some robust evidence and clarity on how firms benefit from mergers in terms of market value and market share,” adds Sen.
“The increase in firm value post-merger may be chiefly attributable to improved efficiencies as opposed to market power. Firms are realizing synergies from mergers which benefit all stakeholders. Consumers are not necessarily paying higher prices, and investors are gaining through holding the stocks of such firms in their financial portfolios,” Sen says.