This paper studies the merger and acquisition ("M&A" hereafter) in the Internet industry, and constructs a theoretical model to anatomize the motivations of the M&A and the factors that impact the performance of M&A. The model analyzes three motivations on M&A: Synergistic Effect Motivation, Latent Value Motivation and Merger Timing Motivation. Among these three motivations, our study shows that the Latent Value motivation is the leading factor that causes the manager's decision on M&A in the case when the M&A result in a financial loss. For the first time, we quantify the synergistic effect and the latent value of M&A in the internet industry. We also develop the concepts of "development merger" and the "prevention merger", and use the model to deduct the optimal timing and price of the M&A in the internet industry.
{"title":"Latent Value, Synergistic Effect and Merger Decision-Making: A Study on the Internet Industry","authors":"Crystal Xiaobei Chen, Li Chang, Shanmin Li","doi":"10.2139/ssrn.1746529","DOIUrl":"https://doi.org/10.2139/ssrn.1746529","url":null,"abstract":"This paper studies the merger and acquisition (\"M&A\" hereafter) in the Internet industry, and constructs a theoretical model to anatomize the motivations of the M&A and the factors that impact the performance of M&A. The model analyzes three motivations on M&A: Synergistic Effect Motivation, Latent Value Motivation and Merger Timing Motivation. Among these three motivations, our study shows that the Latent Value motivation is the leading factor that causes the manager's decision on M&A in the case when the M&A result in a financial loss. For the first time, we quantify the synergistic effect and the latent value of M&A in the internet industry. We also develop the concepts of \"development merger\" and the \"prevention merger\", and use the model to deduct the optimal timing and price of the M&A in the internet industry.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"38 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125735803","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 empirically investigates the relation between vertical integration and video game performance in the U.S. video game industry. For this purpose, we use a widely used data set from NPD on video game montly sales from October 2000 to October 2007. We complement these data with handly collected information on video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate vertically integrated games from those that are just exclusive to a platform First, we show that vertically integrated games produce higher revenues, sell more units and sell at higher prices than independent games. Second, we explore the causal effect of vertical integration and find that, for the average integrated game, most of the difference in performance comes from better release period and marketing strategies that soften competition. By default, vertical integration does not seem to have an effect on the quality of video game production. We also find that exclusivity is associated with lower demand.
{"title":"Vertical Integration, Exclusivity and Game Sales Performance in the US Video Game Industry","authors":"Ricard Gil, F. Warzynski","doi":"10.2139/ssrn.1694311","DOIUrl":"https://doi.org/10.2139/ssrn.1694311","url":null,"abstract":"This paper empirically investigates the relation between vertical integration and video game performance in the U.S. video game industry. For this purpose, we use a widely used data set from NPD on video game montly sales from October 2000 to October 2007. We complement these data with handly collected information on video game developers for all games in the sample and the timing of all mergers and acquisitions during that period. By doing this, we are able to separate vertically integrated games from those that are just exclusive to a platform First, we show that vertically integrated games produce higher revenues, sell more units and sell at higher prices than independent games. Second, we explore the causal effect of vertical integration and find that, for the average integrated game, most of the difference in performance comes from better release period and marketing strategies that soften competition. By default, vertical integration does not seem to have an effect on the quality of video game production. We also find that exclusivity is associated with lower demand.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"154 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129176723","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}
Few transactions have the potential to generate revelations about the market value of corporate assets and liabilities as mergers and acquisitions (M&A). Corporate governance and control mechanisms such as independent directors, independent blockholders, and managerial share ownership are usually important predictors of the size and distribution of the incremental wealth generated by M&A transactions. We add to this literature by investigating these relationships using a sample of banking organization M&A transactions over the period 1990-2004. Unlike research on nonfinancial firms, the impact of independent directors, share ownership of the top five managers, and independent block holders on bank merger purchase premiums in this environment is likely to be measured more consistently because of industry operating standards and regulations. It is also the case that research on banks in this area has not received adequate attention. Our model controls for risk characteristics of the target banks, the deal characteristics, and the economic environment. Our results are robust. They support the hypothesis that independent directors may provide an important internal governance mechanism for protecting shareholders’ interests, especially in large-scale transactions such as mergers and takeovers. We also find the results to be consistent with the hypothesis that independent blockholders play an important role in the market for corporate control as does managerial share ownership. But these effects dampen the impact of independent directors on target shareholders’ merger prices. Our overall findings would support policies that promote independent outside directors on the board of banking firms in order to provide protection for shareholders and investors at large.
{"title":"Corporate Governance Structure and Mergers","authors":"Elijah Brewer, W. Jackson, Julapa Jagtiani","doi":"10.2139/ssrn.1666238","DOIUrl":"https://doi.org/10.2139/ssrn.1666238","url":null,"abstract":"Few transactions have the potential to generate revelations about the market value of corporate assets and liabilities as mergers and acquisitions (M&A). Corporate governance and control mechanisms such as independent directors, independent blockholders, and managerial share ownership are usually important predictors of the size and distribution of the incremental wealth generated by M&A transactions. We add to this literature by investigating these relationships using a sample of banking organization M&A transactions over the period 1990-2004. Unlike research on nonfinancial firms, the impact of independent directors, share ownership of the top five managers, and independent block holders on bank merger purchase premiums in this environment is likely to be measured more consistently because of industry operating standards and regulations. It is also the case that research on banks in this area has not received adequate attention. Our model controls for risk characteristics of the target banks, the deal characteristics, and the economic environment. Our results are robust. They support the hypothesis that independent directors may provide an important internal governance mechanism for protecting shareholders’ interests, especially in large-scale transactions such as mergers and takeovers. We also find the results to be consistent with the hypothesis that independent blockholders play an important role in the market for corporate control as does managerial share ownership. But these effects dampen the impact of independent directors on target shareholders’ merger prices. Our overall findings would support policies that promote independent outside directors on the board of banking firms in order to provide protection for shareholders and investors at large.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"27 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126013113","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}
Macroeconomic developments are important for bank profitability. Country risk is therefore an important determinant of the riskiness of banks. In this research the downside risk of multiple combinations of banks in the EU is modelled by a factor model, explicitly taking into account country risk. The model shows that bank mergers have a negative effect on systemic risk, but cross-border mergers may reduce risk for individual financial institutions. The scope for risk reduction by mergers within a given country, creating so called National Champions, is more limited. Downside risk dependence of banks is also estimated. The results indicate that in general the dependence between banks based in the same country is higher and that the dependence did increase after the introduction of the euro.
{"title":"Cross-Border Banking: The Risk of National Champions","authors":"J. F. Slijkerman","doi":"10.2139/ssrn.1585171","DOIUrl":"https://doi.org/10.2139/ssrn.1585171","url":null,"abstract":"Macroeconomic developments are important for bank profitability. Country risk is therefore an important determinant of the riskiness of banks. In this research the downside risk of multiple combinations of banks in the EU is modelled by a factor model, explicitly taking into account country risk. The model shows that bank mergers have a negative effect on systemic risk, but cross-border mergers may reduce risk for individual financial institutions. The scope for risk reduction by mergers within a given country, creating so called National Champions, is more limited. Downside risk dependence of banks is also estimated. The results indicate that in general the dependence between banks based in the same country is higher and that the dependence did increase after the introduction of the euro.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131737543","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}
Fairness opinions provided by investment banks advising on mergers and acquisitions have been criticized for being conflicted in aiding bankers further their goal of completing the deal as opposed to aiding boards (and shareholders) by providing an honest appraisal of deal value. We find empirical support for this criticism. We find that shareholders on both sides of the deal, aware of the conflict of interest facing advisors, rationally discount deals where advisors provide fairness opinions. The reputation of the advisor serves to mitigate this discount, while the contingent nature of advisory fees appears to have no impact. Furthermore, consistent with the criticism of fairness opinions, we find evidence suggesting that fairness opinions are sought by boards for the legal cover they provide against shareholders unhappy with the deal's terms. Thus, altogether our findings suggest that investment bankers and boards may be complicit in using fairness opinions to further their own interests at an expense to shareholders.
{"title":"Fairness Opinions in Mergers and Acquisitions","authors":"A. Makhija, Rajesh P. Narayanan","doi":"10.2139/ssrn.1789014","DOIUrl":"https://doi.org/10.2139/ssrn.1789014","url":null,"abstract":"Fairness opinions provided by investment banks advising on mergers and acquisitions have been criticized for being conflicted in aiding bankers further their goal of completing the deal as opposed to aiding boards (and shareholders) by providing an honest appraisal of deal value. We find empirical support for this criticism. We find that shareholders on both sides of the deal, aware of the conflict of interest facing advisors, rationally discount deals where advisors provide fairness opinions. The reputation of the advisor serves to mitigate this discount, while the contingent nature of advisory fees appears to have no impact. Furthermore, consistent with the criticism of fairness opinions, we find evidence suggesting that fairness opinions are sought by boards for the legal cover they provide against shareholders unhappy with the deal's terms. Thus, altogether our findings suggest that investment bankers and boards may be complicit in using fairness opinions to further their own interests at an expense to shareholders.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130188507","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 analyse the effects of predation in a vertical differentiation model, where the highquality incumbent is able to price discriminate while the low-quality entrant sets a uniform price. The incumbent may act as a predator, that is, it may price below its marginal costs on a subset of consumers to induce the rival's exit. We show that the entrant may adopt an aggressive attitude to make predation unprofitable for the incumbent. In this case predation does not occur and the equilibrium prices are lower than the equilibrium prices which would emerge in a contest of explicitly forbidden predation. Moreover, we show that when the incumbent may choose whether to price discriminate or not before the game starts, if the quality cost function is sufficiently convex, there always exists a parameter space on which the incumbent prefers to commit not to price discriminate.
{"title":"On the Effects of Selective Below-Cost Pricing in a Vertical Differentiation Model","authors":"Pu Chen","doi":"10.2139/ssrn.1726725","DOIUrl":"https://doi.org/10.2139/ssrn.1726725","url":null,"abstract":"We analyse the effects of predation in a vertical differentiation model, where the highquality incumbent is able to price discriminate while the low-quality entrant sets a uniform price. The incumbent may act as a predator, that is, it may price below its marginal costs on a subset of consumers to induce the rival's exit. We show that the entrant may adopt an aggressive attitude to make predation unprofitable for the incumbent. In this case predation does not occur and the equilibrium prices are lower than the equilibrium prices which would emerge in a contest of explicitly forbidden predation. Moreover, we show that when the incumbent may choose whether to price discriminate or not before the game starts, if the quality cost function is sufficiently convex, there always exists a parameter space on which the incumbent prefers to commit not to price discriminate.","PeriodicalId":249710,"journal":{"name":"ERN: Theory & Evidence on Vertical & Horizontal Integration (Topic)","volume":"59 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134444399","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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