Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, May 17, 2021

Do Low Search Costs Facilitate Like-buys-like Mergers? Evidence from Common Bank Networks

Do Low Search Costs Facilitate Like-buys-like Mergers? Evidence from Common Bank Networks

 

Jiakai Chen

University of Hawaii

Joon Ho Kim

University of Hawaii at Manoa

S. Ghon Rhee

University of Hawaii at Manoa - Shidler College of Business; University of Hawaii at Manoa - Department of Financial Economics and Institutions

Abstract

We examine how search frictions affect merger outcomes. Exploiting firm connections in common bank networks (CBNs) as a channel for reducing search costs, we show that like-buys-like mergers are more probable between firms connected through a CBN. This effect is amplified if the connection has been recently formed or the network contains many plausible choices for merger partners. CBN-facilitated mergers exhibit higher synergy and lower post-merger cost of debt. We confirm that CBNs reduce search costs even after alternative explanations are considered. These findings highlight the importance of search in the process of redrawing firm boundaries.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/05/do-low-search-costs-facilitate-like-buys-like-mergers-evidence-from-common-bank-networks-1.html

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