Klaus Gugler

The effects of mergers: an international comparison

This paper analyzes the effects of mergers around the world over the past 15 years. We utilize a large panel of data on mergers to test several hypotheses about mergers. The effects of the mergers are examined by comparing the performance of the merging firms with control groups of nonmerging firms. The comparisons are made on profitability and sales. The results show that mergers on average do result in significant increases in profits, but reduce the sales of the merging firms. Interestingly, these post merger patterns look similar across countries. We also did not find dramatic differences between mergers in the manufacturing and the service sectors, and between domestic and cross-border mergers. Conglomerate mergers decrease sales more than horizontal mergers. By separating mergers into those that increase profits and those that reduce them and by then examining the patterns of sales changes following the mergers, we determine the effects of mergers on efficiency and market power. Our results suggest that those mergers that decrease profits and efficiency account for a large proportion. However, we can also identify mergers that increase profits by either increasing market power or by increasing efficiency. The first conclusion seems to be a more likely explanation for large companies, whereas the latter is likely to be true for small firms. ZUSAMMENFASSUNG - (Die Effekte von Fusionen: Ein internationaler Vergleich) Dieser Artikel analysiert die Effekte von Fusionen, die weltweit uber die letzten 15 Jahre stattgefunden haben. Wir vergleichen die Gewinn- und Umsatzentwicklung von fusionierenden Firmen mit der Entwicklung von nicht-fusionierenden Firmen. Die Resultate zeigen, dass Fusionen im Durchschnitt zu signifikant hoheren Profiten fuhren, aber dass die Umsatze im Vergleich zur Kontrollgruppe zuruckbleiben. Interessanterweise sind diese Effekte bei Vergleichen zwischen den verschiedenen Landern, bei einem Vergleich zwischen Industriesektor und Dienstleistungssektor bzw. zwischen nationalen und grenzuberschreitenden Fusionen ziemlich ahnlich. Konglomerate Fusionen reduzieren die Umsatze mehr als horizontale Fusionen. Um die Effekte der Fusionen auf die Marktmacht bzw. die Effizienz zu analysieren, teilen wir zuerst die Fusionen in gewinnsteigernde und gewinnreduzierende Fusionen, um dann die Umsatzentwicklung zu betrachten. Unsere Resultate zeigen, dass ein groser Prozentsatz der Fusionen die Gewinne und die Effizienz reduzieren. Wir konnen jedoch auch Fusionen identifizieren, die die Gewinne entweder durch Marktmacht- oder Effizienzsteigerungen erhohen. Die erste Erklarung ist wahrscheinlicher fur grose Firmen, die zweite fur kleine Firmen.

Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment

Abstract This paper investigates the relationship between dividends and the ownership and control structure of the firm. For a panel of Austrian firms over the 1991/99 period, we find that state-controlled firms engage in dividend smoothing, while family-controlled firms do not. The latter choose significantly lower target payout levels. Consistently, state-controlled firms are most reluctant and family-controlled firms are least reluctant to cut dividends when cuts are warranted. The dividend behavior of bank- and foreign-controlled firms lies in between state- and family-controlled firms. This is consistent with the expected “ranking” of information asymmetries and managerial agency costs. The above results hold for firms with good investment opportunities. We find that firms with low growth opportunities optimally disgorge cash irrespective of who controls the firm.

An Empirical Assessment of the 2004 EU Merger Policy Reform

Based on a database of 326 merger cases scrutinized by the European Commission between 1990 and 2007, we evaluate the economic impact of the change in European merger legislation in 2004. We ?rst propose a general framework to assess merger policy effectiveness, which is based on standard oligopoly theory and makes use of stockmarket reactions as an external assessment of the merger and the merger control decision. We then focus on four different dimensions of effectiveness: 1) legal certainty; 2) frequency and determinants of type I and type II errors; 3) rent-reversion achieved by different merger policy tools; and 4) deterrence of anti-competitive mergers. To infer the economic impact of the merger policy reform, we compare the results of our four tests before and after its introduction. Our results suggest that the policy reform seems to have been only a modest improvement of European merger policy.

Market Power Versus Efficiency Effects of Mergers and Research Joint Ventures: Evidence from the Semiconductor Industry

Merger control authorities may approve a merger based on an efficiency defense. An important aspect in clearing mergers is that the efficiencies need to be merger-specific. Joint ventures, and in particular research joint ventures (RJVs), may achieve comparable efficiencies possibly without the anticompetitive (market power) effects of mergers. We empirically account for the endogenous formation of mergers and RJVs and provide evidence that at the semiconductor level, mergers and RJVs achieve dominant (net) efficiency effects. Our counterfactuals provide evidence that the efficiency gains caused by mergers would have been achieved by RJVs as well. Therefore, RJVs often represent viable alternatives to mergers from the consumer welfare point of view. At the more disaggregate level we find that the efficiency effects are larger in the microcomponents than in the memory market. This finding emphasizes the importance of market determinants (such as product differentiation and entry) having an impact on efficiency and market power effects.

The Determinants of Merger Waves

One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers’ shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses. ZUSAMMENFASSUNG - (Die Determinanten von Fusionswellen) Es ist eines der auffallendsten Merkmale von Unternehmenszusammen-schlussen, dass sie in Wellen stattfinden und dass diese Wellen mit dem Anstieg der Aktienkurse und des Preis/ Ertragsverhaltnisses zusammen hangen. Wir untersuchen vier Hypothesen, die als Erklarung von Unternehmenszusammenschlussen genannt werden: die der Industrieschocks, die q-Hypothese, die Hypothese der Uberbewertung und die Hypothesen des Ermessensspielraums von Managern. Die ersten zwei sind neoklassischer Natur insofern als sie davon ausgehen, dass Manager Gewinne maximieren, Unternehmenszusammenschlusse Reichtum schaffen und der Kapitalmarkt effizient ist. Die zwei letzteren sind Verhaltenshypothesen, die die neo-klassischen Annahmen (auf unterschiedliche Weise) lockern. Wir untersuchen die vier Hypothesen, indem wir Modellschatzungen der von Unternehmen akquirierten Aktien vornehmen. Dabei werden in den Modellen die Charakteristika der bei Zusammenschlussen aufgekauften Unternehmen identifiziert und die Rendite fur die Aktionare des aufkaufenden Unternehmens geschatzt. Auch wenn alle vier Hypothesen in gewisser Hinsicht Bestatigung finden, untermauern die meisten Belege die zwei Verhaltenshypothesen.

Marginal q, Tobin’s q, Cash Flow, and Investment

Many studies of the determinants of investment use Tobin’s q to control for the investment opportunities of a firm. Tobin’s q roughly measures the average return on a firm’s capital anticipated by the market. More relevant for investment decisions, however, is the marginal return on capital. In this paper we estimate investment and research and development (R&D) equations using a measure of marginal q. We use marginal q to identify the existence of cash constraints and managerial discretion and as a separate explanatory variable. For a sample of 560 U.S. firms observed over the 1977–1996 period we present evidence confirming the existence of both cash constraints in some companies and managerial discretion in others.

Average q, marginal q, and the relation between ownership and performance

Using average performance measures – as the literature does - to investigate the relation between ownership structure and performance suffers from severe drawbacks. We propose a marginal Tobin’s q and argue for its superiority.

The impact of infrastructure and service-based competition on the deployment of next generation access networks: Recent evidence from the European member states

This work identifies the most important determinants of next generation access (NGA) network deployment, using data from the EU27 member states for the years 2005–2011. Our results indicate that the more service-based competition is pronounced the more negative is the impact on NGA deployment, while competitive pressure from broadband cable and mobile affects NGA deployment in an inverted U-shaped manner. We further find that there are severe adjustment costs and stickiness towards the desired long-term level of NGA infrastructure. It appears that the approach of the European Commission to force service-based competition via cost-based access regulation will not elicit the huge new investment needed for a comprehensive NGA roll-out.

Corporate governance and investment

This article contributes in at least three ways to the investment‐cash flow literature. First, it finds that the corporate governance environment of a firm affects the relationship between investment and cash flow. Second, it allows for both asymmetric information and managerial discretion explanations for positive investment‐cash flow coefficients, thereby overcoming most of the ambiguities in this interpretation. Finally, by using a GMM estimator most of the problems with traditional OLS models are avoided. It is found that family‐controlled firms appear to suffer from cash constraints as evidenced by a positive and robust relationship of investment to cash flow. State‐controlled firms also exhibit a positive and significant cash flow sensitivity, which we explain by managerial discretion.

Is ownership really endogenous

For a large panel of US firms it is found that managerial ownership is (econometrically) endogenous as Himmelberg et al. (Journal of Financial Economics, 53, 353-384, 1999) found. The largest shareholder, however, affects performance exogenously. This also holds for German firms.