Telecommunications deregulation and the motives for mergers

SMC Author

Kevin Okoeguale

SMC Affiliated Work

1

Status

Faculty

School

School of Economics and Business Administration

Department

Finance

Document Type

Article

Publication Date

2017

Publication / Conference / Sponsorship

Journal of Economics and Business

Description/Abstract

We study mergers in the regulated telecommunications industry to test theories of merger gains. We find that mergers yield positive returns to the combined firms. Because this effect is consistent with the collusion, competitive advantage and anticipation hypotheses, we study returns to rivals to differentiate the hypotheses. Our results indicate that rival firms earn positive abnormal stock returns upon the announcement of an industry merger and that returns exhibit substantial cross-sectional dispersion. Rivals that become targets in subsequent mergers earn significantly greater announcement returns than do subsequent non-targets. Financial characteristics of initial target firms and subsequent targets are statistically indistinguishable. Finally, rival abnormal returns are insignificantly related to market concentration and horizontal vs. vertical deal status. These results are consistent with predictions of the anticipation hypothesis and inconsistent with collusion. Thus, our findings indicate that deregulation did not foster collusion in mergers in the telecom industry but, instead, merger gains are due to merger-induced efficiencies.

Keywords

Mergers, Deregulation, Rivals, Efficiency, Collusion

Scholarly

yes

DOI

10.1016/j.jeconbus.2017.08.002

Volume

94

First Page

15

Last Page

31

Disciplines

Business | Economics

Original Citation

Okoeguale, K. and R. Loveland, “Telecommunications Deregulation and the Motives for Mergers.” Journal of Economics and Business 94, 15-31. 2017. doi:10.1016/j.jeconbus.2017.08.002

Link to Full Text

Share

COinS