Essays in Corporate Finance

Becker, Mary Essays in Corporate Finance. Doctoral Dissertation, University of Pittsburgh.

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Abstract

My dissertation includes two related essays in supply chain and corporate finance. The first is sole authored and entitled “Do merger waves cause ripples in vertically related industries” and the second is co-authored with Shawn Thomas and entitled “Changes in concentration across vertically related industries”. In the first, I use a sample of all industries experiencing merger activity between 1980 and 2008 to investigate the relation between customer and supplier horizontal merger waves. I find evidence that a merger wave in a customer (supplier) industry increases the likelihood of a subsequent merger wave in a related industry by 30% (28%), depending on the definition of merger wave used. Additional tests of the data show that industry merger waves are more likely to follow customer merger waves, but not necessarily supplier merger waves, when bargaining power motives are at work. I find that vertically related industry merger waves occur subsequent to supplier and customer industry merger waves, suggesting that merger waves move along the supply chain. Finally, I find that the association between related industry horizontal merger waves is strongest for non-consumer goods industries and industries with little product differentiation. In the second essay, we investigate the magnitude, timing, and direction of the association between changes in concentration across vertically related industries over the period 1978-2008. We find robust evidence that changes in an industry’s level of concentration are significantly positively related to prior and simultaneous changes in the concentration of their customer industries. We find weaker evidence that changes in an industry’s level of concentration are related to changes in the concentration of their supplier industries. Thus, the association between changes in concentration across vertically related industries appears stronger in the upstream direction than in the downstream direction. We find that increased concentration across vertically related industries, perhaps reflecting countervailing power effects, explains in part the observed positive association between changes in concentration; however, we also find robust evidence that decreases in concentration, perhaps reflecting the effects of technological innovation in vertically related industries, are also important determinants of the observed association.

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