AbstractsBusiness Management & Administration

Impact of mergers and acquisition on supply chain performance

by Jing Zhu

Institution: McGill University
Department: Desautels Faculty of Management
Degree: PhD
Year: 2012
Keywords: Business Administration - Management
Record ID: 1963813
Full text PDF: http://digitool.library.mcgill.ca/thesisfile107642.pdf


This thesis consists of three essays that examine the impact of mergers and acquisitions on supply chain performance. In the first essay, we analytically study the effects of upstream and downstream mergers on suppliers, retailers and consumers, in an oligopolistic market. We start with a benchmark case where mergers do not generate any synergy. By assuming that firms compete in Bertrand or Cournot fashion, we compare the effects of an upstream merger with a downstream one. We find that upstream (respectively, downstream) mergers always benefit the merging firms, while adversely affecting their dependent downstream (respectively, upstream) supply chain partners; non-dependent suppliers and non-dependent retailers also benefit from such horizontal mergers. Moreover, an upstream merger is more detrimental to consumers than a downstream merger. We then analyze three extended models: (i) In a case where mergers generate synergies through economies of scale at both levels, merging firms still benefit while non-merging competitors suffer a loss in profit. (ii) If the synergy comes as a result of economies of scope, then an upstream merger benefits not only the merging suppliers but also the related downstream retailers; a downstream merger benefits all the firms in the merging industry and upstream unrelated suppliers. (iii) If market demand is uncertain, then each firm's optimal strategy will depend on the value of parameters.The second essay is an empirical investigation of the effects of horizontal mergers and acquisitions on the merging firms' performance. Our primary focus is on inventory-related supply chain metrics, while other operating performance measures are also considered. By using accounting panel data from COMPUSTAT database and the data on horizontal mergers and acquisitions in manufacturing, wholesale and retail sectors from SDC Platinum database, we study how the (one-year) post-merger performance compares to that of the (one-year) pre-merger level for these metrics. The analysis is conducted at two different levels. We first examine changes in absolute performance. Relative performance compared to the industry average is studied next. We then extend our study to test the longer term effects of mergers (two-year post-merger), and also compare the performance of merging firms to similar non-merging competitors. In addition, a multivariate regression analysis is performed to identify the performance factors that significantly affect merging firms' profitability.In the third essay, we again empirically study an issue that complements the second essay. Specifically, we evaluate the merging firms' performance after vertical mergers and acquisitions. We find that after the vertical integration, the acquiring firms' operational performance actually deteriorates in the first year after the transaction. The negative effect lessens over time and it normally takes at least two years for those merged firms to catch up with their matching rivals. Looking at five years performance after vertical mergers, we find that…