Title: The sources of gains to M&A in the automotive supply industry: testing collusion versus efficiency theory

Authors: Markus Mentz; Steffen Meinshausen; Christian Babl; Dirk Schiereck

Addresses: Department of Finance, Accounting and Real Estate, EBS Business School, Schloss Reichartshausen, D-65375 Oestrich-Winkel, Germany ' Department of Law and Economics, Darmstadt University of Technology, Hochschulstrasse 1, D-64289 Darmstadt, Germany ' Department of Law and Economics, Darmstadt University of Technology, Hochschulstrasse 1, D-64289 Darmstadt, Germany ' Department of Law and Economics, Darmstadt University of Technology, Hochschulstrasse 1, D-64289 Darmstadt, Germany

Abstract: In this paper, we examine the wealth effects of horizontal mergers and acquisitions in the automotive supply industry. In order to test the theoretical implications of the competing efficiency and collusion theories, we investigate the cumulative abnormal returns (CAR) induced by M&A announcements on acquiring companies as well as their respective rivals and suppliers. Based on a sample of 205 takeovers, we find that mergers and acquisitions entail positive CAR on acquirers, but lead to negative share price reactions for customers as well as rivals. This result stands in clear contrast to recent studies that are dedicated to the upstream and horizontal effects of takeovers and speaks in favour of the efficiency theory of M&A activity rather than the collusion theory.

Keywords: automotive suppliers; mergers and acquisitions; horizontal M&A; collusion theory; efficiency theory; rival share price reactions; automobile industry; cumulative abnormal returns; takeovers.

DOI: 10.1504/IJATM.2014.058365

International Journal of Automotive Technology and Management, 2014 Vol.14 No.1, pp.46 - 64

Available online: 18 Dec 2013 *

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