Friday, March 17, 2017
Douglas J. Fairhurst, Washington State University and Ryan Williams, University of Arizona - Department of Finance analyze Collusion and Efficiency in Horizontal Mergers: Evidence from Geographic Overlap.
ABSTRACT: We explore the sources of gains in horizontal mergers by exploiting heterogeneity in the overlap between the merging firms’ geographic footprints. We calculate the geographic overlap between the bidder, target, and their rivals to identify variation in the competitive impact of horizontal mergers. We document negative rival stock price reactions for “expansion” mergers when the bidder acquires a target with a different geographic footprint, indicating that these mergers are on average for efficiency reasons. Conversely, we detect significantly positive rival reactions for “concentrating” mergers when the bidder and target operating in similar geographic regions. Finally, we use data on state Attorneys General (AGs) to provide staggered, state-level variation in the political environment. We show that bidders avoid “concentrating” mergers in the presence of Democratic AGs, thereby supporting the argument that horizontal mergers that increase local industry concentration are likely to be anti-competitive, as well as documenting the significant role of state-level AGs in the M&A regulatory process.