How do Competition Policy Remedies Impact Post-Acquisition Performance? Evidence from M&As in Europe

Abstract

Despite the prevalence of competition policy intervention to prevent anti-competitive Mergers & Acquisitions (M&As) and its substantive impact on firms, the relationship between competition policy and firm performance has received scant attention in strategic management. This study examines how the conditions imposed by competition authorities – i.e., remedies – affect post-acquisition performance. Drawing on the behavioral view of the firm, we argue that the binding nature of remedies allows organizational change. Specifically, we argue that when remedies are imposed firms have less need to address pressures against organizational change and so have greater exploration opportunities that will enhance post-acquisition performance. We further argue that a firm’s level of innovation strengthens the remedies-performance relationship. Analyses of data on a sample of 1010 M&As authorized by the European Commission show overall a positive association between remedies and post-acquisition performance. In addition, we also find that highly innovative firms benefit from remedies more than poorly innovative firms.