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Horizontal, downstream and upstream effects of merger & acquisition

operations in the car industry

I. Introduction
II. Background
II. 1. Literature review
Table 1. Abnormal returns to the merging firms and their rivals as predicted under the
market power and economic efficiency hypotheses

Theory Predicting the


Source of the Merger AR for merging firms AR for Rivals
Gains
A. Probability-increasing events

B. Probability-decreasing events
collusion hypothesis

predatory pricing model

productivity effect

information effect
II. 2. Overview of the automobile sector
Figure 1. Porter’s five forces model

Potential entrants

Suppliers Industry competitors Buyers

Substitutes
II. 3. Hypotheses emerging from the literature

collusion

predatory pricing
supplier pressure hypothesis

Table 2. Initial announcement abnormal returns to the merging firms,


their rivals, their suppliers and their customers

Theory predicting the AR for AR for rivals AR for AR for suppliers


source of the merger merging firms customers
gains.

III. Data
III.1. Data source and sample selection
Table 3. Summary statistics about sample operations by SIC code

SIC Sector name Firm Role Total

Total 595

III. 2. Method used to form customers, suppliers and competitors portfolio per
operations
IV. M&a operations within the car industry and associated horizontal
and vertical effects
IV. 1. Methods

α β ε

α β
ε
Table 4. Market Model Regression Summary Statistics and Specification Tests

Panel A. Regression summary


α β R2

Panel B. Hypothesis and Specification Tests


Hypothesis Rejected (%)
p-level α=0 β=0 JB Q(1)

= ∑ ∑ε
τ= − =

  rT  
 T  m − rm  
 T T 
[ T ]=Tσ  + +  
+ T − Cov[Rt Rt − ]
U U Var rm
 
 

U rm

Var(rm) rmT

T σ
[ − ]
IV. 2. Results
Table 5. Price Reaction to the Initial Merger Announcement

Bidders (N=64)

Targets (N=34)

Combinations (N=23)

Competitors (N=67)

Suppliers (N=67)

Customers (N=69)
Figure 2. Initial announcement CAAR

Panel A
Merger Announcement

Bidder Target Combination

6.00

5.00

4.00
CAAR (%)

3.00

2.00

1.00

0.00

-1.00
-5 -4 -3 -2 -1 0 1 2 3 4 5
Date-Announcement

Panel B
Merger Announcement

Competitor Supplier Customer

0.4
0.3
0.2
0.1
0
CAAR (%)

-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
-0.7
-5 -4 -3 -2 -1 0 1 2 3 4 5
Date-Announcement
V. Conclusion
References

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