Feng Liu, Mingjie Fang, Kwangtae Park, Xuesheng Chen
Supply chain finance (SCF) has attracted considerable attention being an innovative business model that allows firms, especially small- and medium-sized enterprises (SMEs), to convert illiquid assets into cash without incurring additional liabilities. However, its effects on SME performance and risk have been insufficiently studied. The competitiveness of SMEs depends on performance enhancement and risk mitigation. Thus, this study constructs a scaled-decile rank transformation of account receivable turnover to gauge the degree to which a supplier implements SCF, thereby examining the relationship between SCF, performance, and risk. We collect data on 4,679 SMEs from the Chinese manufacturing sector. Thereafter, hierarchical linear regression, a complex form of multiple linear regression analysis, is employed to test the hypotheses. The results indicate that an SME’s SCF adoption positively impacts its performance but negatively impacts its risk. To further explore cross-sectional variability, we investigated the buyer-supplier relationship’s moderating role. Results show that an increase in customer concentration strengthens both the positive effects of SCF on performance and the negative effects of SCF on risk. Overall, our study contributes to the literature on the interface of operations and finance in supply chains by exploring the multiple facets of SCF adoption and highlighting the moderating role of buyer-supplier relationship in SCF and SME competitiveness. Finally, we provide managerial implications for SMEs and financial service providers by validating the value of SCF implementation and the buyer-supplier relationship management in forging competitive advantages.
{"title":"Supply Chain Finance, Performance, and Risk: How SMEs Adjust Their Buyer-Supplier Relationship for Competitiveness?","authors":"Feng Liu, Mingjie Fang, Kwangtae Park, Xuesheng Chen","doi":"10.7441/joc.2021.04.05","DOIUrl":"https://doi.org/10.7441/joc.2021.04.05","url":null,"abstract":"Supply chain finance (SCF) has attracted considerable attention being an innovative business model that allows firms, especially small- and medium-sized enterprises (SMEs), to convert illiquid assets into cash without incurring additional liabilities. However, its effects on SME performance and risk have been insufficiently studied. The competitiveness of SMEs depends on performance enhancement and risk mitigation. Thus, this study constructs a scaled-decile rank transformation of account receivable turnover to gauge the degree to which a supplier implements SCF, thereby examining the relationship between SCF, performance, and risk. We collect data on 4,679 SMEs from the Chinese manufacturing sector. Thereafter, hierarchical linear regression, a complex form of multiple linear regression analysis, is employed to test the hypotheses. The results indicate that an SME’s SCF adoption positively impacts its performance but negatively impacts its risk. To further explore cross-sectional variability, we investigated the buyer-supplier relationship’s moderating role. Results show that an increase in customer concentration strengthens both the positive effects of SCF on performance and the negative effects of SCF on risk. Overall, our study contributes to the literature on the interface of operations and finance in supply chains by exploring the multiple facets of SCF adoption and highlighting the moderating role of buyer-supplier relationship in SCF and SME competitiveness. Finally, we provide managerial implications for SMEs and financial service providers by validating the value of SCF implementation and the buyer-supplier relationship management in forging competitive advantages.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"19 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121219947","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Two Delaware appraisal related developments occurred in the summer of 2007. These developments have made it easier for target shareholders to seek appraisal, thus strengthening Delaware appraisal rights. Recent studies have documented empirical patterns that associate stronger appraisal rights with higher overall takeover premiums for all appraisal eligible deals. Meanwhile, the finance literature has long discussed the competitive nature of the market for corporate control. If buyers have already been paying competitive prices, the deal prices are unlikely to experience an overall increase in response to stronger appraisal rights, which protect minority target shareholders when they are under-paid at sub-market rates in M&A transactions. In this paper, we revisit the empirical patterns documented by recent studies and find that, consistent with the finance literature, there is no evidence that the strengthening of appraisal rights has led to an overall increase in takeover premiums across all appraisal eligible deals.
{"title":"Has the Strengthening of Appraisal Rights Led to an Increase in Takeover Premiums?","authors":"Yuxiao Huang, G. Jetley, Xinyu Ji","doi":"10.2139/ssrn.3816625","DOIUrl":"https://doi.org/10.2139/ssrn.3816625","url":null,"abstract":"Two Delaware appraisal related developments occurred in the summer of 2007. These developments have made it easier for target shareholders to seek appraisal, thus strengthening Delaware appraisal rights. Recent studies have documented empirical patterns that associate stronger appraisal rights with higher overall takeover premiums for all appraisal eligible deals. Meanwhile, the finance literature has long discussed the competitive nature of the market for corporate control. If buyers have already been paying competitive prices, the deal prices are unlikely to experience an overall increase in response to stronger appraisal rights, which protect minority target shareholders when they are under-paid at sub-market rates in M&A transactions. In this paper, we revisit the empirical patterns documented by recent studies and find that, consistent with the finance literature, there is no evidence that the strengthening of appraisal rights has led to an overall increase in takeover premiums across all appraisal eligible deals.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122840930","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper demonstrates that when companies’ social values are more aligned with households’, then households do exhibit greater propensity to participate in the stock market; tolerate greater financial risk; invest more and trade less, which lowers the overall volatility. Indeed, we create a households-companies social values alignment index, which reflects companies and households’ adjacent view over core social issue, especially, on ESG issues. For companies’ social value proxy, we utilize data about average companies’ ESG rating; and for households’ we construct an index that captures the overall households’ social value and sentiment toward ESG issues. We then employ Beta-time dependent econometrics technique to generate a time series data to analyze the social values alignment between households and companies to gather our inference. The underlying mechanism to identify our channels is that social alignment increases the households-companies trust and lower the cost to research for stocks. Collectively, households-companies social alignment has implications on key households’ portfolio choice decisions, and ultimately increases the overall welfare.
{"title":"Households-Companies Social Alignment and Portfolio Choice: The ESG Case","authors":"Yosef Bonaparte","doi":"10.2139/ssrn.3939795","DOIUrl":"https://doi.org/10.2139/ssrn.3939795","url":null,"abstract":"This paper demonstrates that when companies’ social values are more aligned with households’, then households do exhibit greater propensity to participate in the stock market; tolerate greater financial risk; invest more and trade less, which lowers the overall volatility. Indeed, we create a households-companies social values alignment index, which reflects companies and households’ adjacent view over core social issue, especially, on ESG issues. For companies’ social value proxy, we utilize data about average companies’ ESG rating; and for households’ we construct an index that captures the overall households’ social value and sentiment toward ESG issues. We then employ Beta-time dependent econometrics technique to generate a time series data to analyze the social values alignment between households and companies to gather our inference. The underlying mechanism to identify our channels is that social alignment increases the households-companies trust and lower the cost to research for stocks. Collectively, households-companies social alignment has implications on key households’ portfolio choice decisions, and ultimately increases the overall welfare.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116179414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The sole aim of the study is to analyze the effect of the lease as a potential driver of firm’s financial performance in oil and gas industry of Pakistan. The population for the current research study comprises of 18 listed companies of oil and gas sector of Pakistan but the final sample includes only nine companies which were using lease financing. The data were collected from the annual reports of companies from the year 2013 to 2017. Lease financing is used as an independent variable while firm performance as dependent variable defined by ROA. ordinary least square method was used. The study concludes that financing through the lease is not a significant driver of financial performance in oil and gas companies of Pakistan and also negatively affecting it rather these companies heavily rely on debt financing which decreases their performance. Only the firm size has a positive and significant effect on a firm’s performance in this sector. The policy makers and management should consider lease financing as a potential factor of decreasing the firm performance in oil and gas industry of Pakistan for future consideration. The research study has considerable importance for the oil and gas sector of Pakistan as the first in this domain for the future research, especially for the lease financing
{"title":"Lease Financing as a Performance Driver: Evidence from Oil and Gas Sector of Pakistan","authors":"Z. Bashir","doi":"10.53369/qotn2572","DOIUrl":"https://doi.org/10.53369/qotn2572","url":null,"abstract":"The sole aim of the study is to analyze the effect of the lease as a potential driver of firm’s financial performance in oil and gas industry of Pakistan. The population for the current research study comprises of 18 listed companies of oil and gas sector of Pakistan but the final sample includes only nine companies which were using lease financing. The data were collected from the annual reports of companies from the year 2013 to 2017. Lease financing is used as an independent variable while firm performance as dependent variable defined by ROA. ordinary least square method was used. The study concludes that financing through the lease is not a significant driver of financial performance in oil and gas companies of Pakistan and also negatively affecting it rather these companies heavily rely on debt financing which decreases their performance. Only the firm size has a positive and significant effect on a firm’s performance in this sector. The policy makers and management should consider lease financing as a potential factor of decreasing the firm performance in oil and gas industry of Pakistan for future consideration. The research study has considerable importance for the oil and gas sector of Pakistan as the first in this domain for the future research, especially for the lease financing","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"116 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122322431","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This research examines the intervention of capital structure with different characteristics of corporate governance and different measures of financial performance. Data was collected from 113 PSX listed firms ranging from 2013-2018. The study uses multiple regression approach for testing the required set of hypotheses. The results reveal that insider shareholding, and board size significantly but negatively affect financial performance whereas, audit committee’s size positively, and significantly affects financial performance. Furthermore, about 20% of CEOs hold dual positions in listed firms, which also has a positive impact on financial performance. The results also reveal that capital structure positively influences financial performance. This research adds to the literature on corporate governance and firm performance in emerging countries, particularly Pakistan.
{"title":"Corporate governance and capital structure as driving force for financial performance: Evidence from non-financial listed companies in Pakistan.","authors":"Z. Bashir","doi":"10.2139/ssrn.3936401","DOIUrl":"https://doi.org/10.2139/ssrn.3936401","url":null,"abstract":"This research examines the intervention of capital structure with different characteristics of corporate governance and different measures of financial performance. Data was collected from 113 PSX listed firms ranging from 2013-2018. The study uses multiple regression approach for testing the required set of hypotheses. The results reveal that insider shareholding, and board size significantly but negatively affect financial performance whereas, audit committee’s size positively, and significantly affects financial performance. Furthermore, about 20% of CEOs hold dual positions in listed firms, which also has a positive impact on financial performance. The results also reveal that capital structure positively influences financial performance. This research adds to the literature on corporate governance and firm performance in emerging countries, particularly Pakistan.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"337 6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134503316","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Liquidity management is a crucial decision in commercial banking operations especially when the depositors need cash daily. A sound liquidity policy may not only enhance the efficiency of a bank’s operations but also may impact its customer retention. The study, therefore, is focused to investigate the capacity of bank-specific forces like capital adequacy and management quality for explaining the commercial bank’s liquidity decision in Pakistan. This empirical research study uses the financial statements of 23 commercial banks with eleven years’ frequency; 2008-2018. The study employs the panel-data modeling and estimation method for the analysis of relevant data. Bank’s liquidity management decision was used as the outcome variable while the independent variables were capital adequacy ratio and management quality ratio. The funding cost ratio, profitability ratio, deposit ratio, and non-performing loan ratio were used as the control variable. This empirical research finds that the commercial bank’s liquidity decision is strongly supported due to increments in capital adequacy ratio as well as in management quality ratio while funding cost ratio and non-performing loans significantly reduce the existing level of liquidity in commercial banks of Pakistan. The study contributes to the understanding of liquidity decisions not only in Pakistan but also in other countries in the Asian-region. The factors used for explaining liquidity decisions of the banking sector in this study are not necessarily the only factors in this domain but may include further industry-based, firm-specific based, and macro-level factors in future research. However, the policymakers in the commercial banking sector of Pakistan are recommended to consider the significant factors of this study while deciding on setting an appropriate level of liquidity in their banks for the proper functioning of their day to day operations.
{"title":"Capital Adequacy and Management Quality for Banking Liquidity Management Decision in Pakistan.","authors":"Z. Bashir","doi":"10.2139/ssrn.3936408","DOIUrl":"https://doi.org/10.2139/ssrn.3936408","url":null,"abstract":"Liquidity management is a crucial decision in commercial banking operations especially when the depositors need cash daily. A sound liquidity policy may not only enhance the efficiency of a bank’s operations but also may impact its customer retention. The study, therefore, is focused to investigate the capacity of bank-specific forces like capital adequacy and management quality for explaining the commercial bank’s liquidity decision in Pakistan. This empirical research study uses the financial statements of 23 commercial banks with eleven years’ frequency; 2008-2018. The study employs the panel-data modeling and estimation method for the analysis of relevant data. Bank’s liquidity management decision was used as the outcome variable while the independent variables were capital adequacy ratio and management quality ratio. The funding cost ratio, profitability ratio, deposit ratio, and non-performing loan ratio were used as the control variable. This empirical research finds that the commercial bank’s liquidity decision is strongly supported due to increments in capital adequacy ratio as well as in management quality ratio while funding cost ratio and non-performing loans significantly reduce the existing level of liquidity in commercial banks of Pakistan. The study contributes to the understanding of liquidity decisions not only in Pakistan but also in other countries in the Asian-region. The factors used for explaining liquidity decisions of the banking sector in this study are not necessarily the only factors in this domain but may include further industry-based, firm-specific based, and macro-level factors in future research. However, the policymakers in the commercial banking sector of Pakistan are recommended to consider the significant factors of this study while deciding on setting an appropriate level of liquidity in their banks for the proper functioning of their day to day operations.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129597567","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
P. Bolton, Marcin T. Kacperczyk, C. Leuz, G. Ormazabal, S. Reichelstein, D. Schoenmaker
The overwhelming majority of publicly listed companies around the world still does not disclose their carbon emissions, and even fewer privately held companies do so. We argue that mandatory carbon disclosures for public and private companies can make an elementary but essential contribution to the global drive towards a net zero economy. They deliver much of what policy makers and asset managers need to manage carbon transition risk, and perhaps more importantly, are likely to accelerate the pace of future carbon emission reductions. For this, it is important that mandatory carbon disclosures are kept simple and straightforward to interpret, and that such a mandate be enforced.
{"title":"Mandatory Corporate Carbon Disclosures and the Path to Net Zero","authors":"P. Bolton, Marcin T. Kacperczyk, C. Leuz, G. Ormazabal, S. Reichelstein, D. Schoenmaker","doi":"10.2139/ssrn.3946031","DOIUrl":"https://doi.org/10.2139/ssrn.3946031","url":null,"abstract":"The overwhelming majority of publicly listed companies around the world still does not disclose their carbon emissions, and even fewer privately held companies do so. We argue that mandatory carbon disclosures for public and private companies can make an elementary but essential contribution to the global drive towards a net zero economy. They deliver much of what policy makers and asset managers need to manage carbon transition risk, and perhaps more importantly, are likely to accelerate the pace of future carbon emission reductions. For this, it is important that mandatory carbon disclosures are kept simple and straightforward to interpret, and that such a mandate be enforced.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130620916","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the evolutionary path of companies' corporate social responsibility (CSR) since their debuts as public companies. We find that firms' average CSR score is rising over the time they are listed in the public capital market. Neither the CSR score change over the age of the firm nor the general trend of CSR over time can explain this pattern. The phenomenon is more likely driven by the number of years the firms have been in the public market. We further find supporting evidence that this pattern of rising CSR since the public listing is more pronounced when the firm is more profitable, holds more cash, has a higher payout ratio, or has more free cash flows. Overall, our findings support the hypothesis that improving CSR performance may not be the priority of most firms new to the public market, but the "public camera effect" is an effective mechanism to assure the growth of CSR assuming the firms remain in the public market.
{"title":"The Evolution of Public Companies' Corporate Social Responsibility","authors":"Mengxi Chen, Xu Niu","doi":"10.2139/ssrn.3941585","DOIUrl":"https://doi.org/10.2139/ssrn.3941585","url":null,"abstract":"We examine the evolutionary path of companies' corporate social responsibility (CSR) since their debuts as public companies. We find that firms' average CSR score is rising over the time they are listed in the public capital market. Neither the CSR score change over the age of the firm nor the general trend of CSR over time can explain this pattern. The phenomenon is more likely driven by the number of years the firms have been in the public market. We further find supporting evidence that this pattern of rising CSR since the public listing is more pronounced when the firm is more profitable, holds more cash, has a higher payout ratio, or has more free cash flows. Overall, our findings support the hypothesis that improving CSR performance may not be the priority of most firms new to the public market, but the \"public camera effect\" is an effective mechanism to assure the growth of CSR assuming the firms remain in the public market.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132988700","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
CEO effort is a vital determinant of a company’s profitability and for shareholder wealth. While effort is not an observable construct, its effects and results are palpable and it is defined as the final point to which the management directs its work. For an agent to perform at optimal levels, a principal grants various incentives with the objective of aligning their interests with that of the CEO but several studies have proven that this method does not completely alleviate agency problems. CEOs can take advantage of their managerial discretion and prioritize their personal interests. In this paper, we analyze the impact of CEO efforts on compensation and performance of mining companies. Our results indicate that in periods of economic growth, the companies enjoy marginal returns that do not seem to be the direct result of CEO effort. Also, we have found the CEO’s provide sub-optimal levels of effort during periods of economic growth but receive compensation that is approximately 6 percent greater than that received during recessionary periods.
{"title":"On the Importance of CEO Effort on Firm Performance and Compensation: An Analysis Using Gaussian Copula Marginal Regression Approach","authors":"John Villavicencio Mattos, J. Torrez","doi":"10.2139/ssrn.3933897","DOIUrl":"https://doi.org/10.2139/ssrn.3933897","url":null,"abstract":"CEO effort is a vital determinant of a company’s profitability and for shareholder wealth. While effort is not an observable construct, its effects and results are palpable and it is defined as the final point to which the management directs its work. For an agent to perform at optimal levels, a principal grants various incentives with the objective of aligning their interests with that of the CEO but several studies have proven that this method does not completely alleviate agency problems. CEOs can take advantage of their managerial discretion and prioritize their personal interests. In this paper, we analyze the impact of CEO efforts on compensation and performance of mining companies. Our results indicate that in periods of economic growth, the companies enjoy marginal returns that do not seem to be the direct result of CEO effort. Also, we have found the CEO’s provide sub-optimal levels of effort during periods of economic growth but receive compensation that is approximately 6 percent greater than that received during recessionary periods.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":" 30","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"120828228","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
An ecosystem comprises all downstream products that employ a certain upstream input. Consumers make irreversible investments to join an ecosystem before downstream prices are set. By committing to buy products that use the specific ecosystem input, they are at risk of being held-up. Unable to observe future prices, consumers base their decisions on what they observe about the market structure within each ecosystem, including vertical contracts signed by the upstream firms. By entering into vertical agreements with multiple competing downstream firms, thus creating a credible expectation of lower prices, an upstream firm is able to mitigate consumers' hold-up problem and, as a result, increase ecosystem demand. Our main observation is that, in contrast to the standard case, an upstream monopolist merging with one of its downstream affiliates will find it profitable to continue to serve downstream competitors, even when products sold downstream are homogeneous. In appendix we compute measures of upward pricing pressures following a merger in a market with ecosystem effects.
{"title":"Vertical Mergers in Ecosystems and Consumer Hold-up","authors":"D. Condorelli, Jorge Padilla","doi":"10.2139/ssrn.3933983","DOIUrl":"https://doi.org/10.2139/ssrn.3933983","url":null,"abstract":"An ecosystem comprises all downstream products that employ a certain upstream input. Consumers make irreversible investments to join an ecosystem before downstream prices are set. By committing to buy products that use the specific ecosystem input, they are at risk of being held-up. Unable to observe future prices, consumers base their decisions on what they observe about the market structure within each ecosystem, including vertical contracts signed by the upstream firms. By entering into vertical agreements with multiple competing downstream firms, thus creating a credible expectation of lower prices, an upstream firm is able to mitigate consumers' hold-up problem and, as a result, increase ecosystem demand. Our main observation is that, in contrast to the standard case, an upstream monopolist merging with one of its downstream affiliates will find it profitable to continue to serve downstream competitors, even when products sold downstream are homogeneous. In appendix we compute measures of upward pricing pressures following a merger in a market with ecosystem effects.","PeriodicalId":224709,"journal":{"name":"Corporate Finance: Governance","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134534881","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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