Abstract We study how operating effciencies in horizontal mergers affect market reactions of merging firms' rivals, customers, and suppliers. We measure operating efficiency gains using projections disclosed by merging firms' insiders. Higher efficiency gains are associated with lower announcement returns to merging firms' rivals (due to increased equilibrium output of merging firms), higher returns to their customers (due to lower equilibrium price of merging firms' output), and higher returns to their suppliers (due to the merged firm's higher equilibrium demand for in-puts). Our results suggest that the pass-through of efficiency gains along merging firms' supply chains is as important as the effects of post-merger changes in market power. © The Author(s) 2018. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved. For Permissions, please email: email@example.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
Review of Finance – Oxford University Press
Published: May 29, 2018
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