The Effects of Horizontal Merger Synergies on Competitors, Customers, and Suppliers

Abstract

In this paper, we employ a novel, hand-collected dataset of management forecasts of merger-related synergistic gains to examine directly the role of product market linkages in the impact of merger synergies on valuation and operating performance of corporate customers, suppliers, and product market rivals of firms merging horizontally. Our empirical evidence generally supports the predictions of a stylized model that we develop to analyze the effects of merger synergies on firms having output or input market linkages with the merging companies and/or with their product market rivals. Our results demonstrate, for the first time, that merger synergies are an important determinant of the stock market reaction and of the post-merger change in operating performance of merging firms’ product market rivals, customers, and suppliers, a claim that has been made in the past with very limited empirical support. More broadly, our results highlight the importance of product market linkages in explaining firms’ strategies, valuations, and performance.