Merger and acquisition incentives: Returns and impacts

This thesis consists of two essays that explore the impact of mergers and acquisitions on market performance in the semiconductor industry and the impact on announcement day returns within cross-border, country-specific merger programs. The first essay (with Ralph Siebert) investigates the impact of firm-specific discount factors on merger formation and market performance. We estimate firm-specific discount factors for 228 public and private firms operating in the semiconductor market and apply a heterogeneous treatment effects model which accounts for firms\u27 endogenous selection into mergers, as well as the heterogeneous impact of mergers on the product market. Our study provides evidence that firms\u27 discount factors explain merger formation and the impact on product market performance. More specifically, we find that acquiring firms characterized by high discount factors (patient firms) merge with efficient and innovative target firms, and achieve high efficiency gains. In contrast, acquiring firms characterized by low discount factors (impatient firms) merge with less innovative target firms, and achieve higher market power effects. In the second essay I investigate cross-border merger programs into specific countries and find that, in contrast to the previous literature showing declining returns in merger programs, returns initially increase. This paper provides evidence that new information contained in the announcement of a second merger into a foreign country resolves a portion of the uncertainty about the first merger and leads to increased returns to the second merger. I use heterogeneity in target country- and deal-specific uncertainty to show that the increase to second merger returns is greater when the first merger is faced with more uncertainty. In both cases, I find the returns to the second merger are greater than returns to the first merger when the level of uncertainty is the highest. This provides evidence that the resolution of uncertainty is important for explaining the increasing returns to the second merger in cross-border, country-specific merger programs