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Market value, market share, and mergers: Evidence from a panel of U.S. firms

Article  in  Managerial and Decision Economics · May 2017

DOI: 10.1002/mde.2924

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 Market Value, Market Share, and Mergers:
Evidence from a Panel of U.S. Firms∗
Mahdiyeh Entezarkheir† Anindya Sen‡

26 February 2018

Abstract

Improving shareholder value has often been cited as a merger determinant. Since
mergers create larger firms and less competition, they may increase shareholder value
through higher market share and stock-market value. We investigate merger impacts
on firms’ stock-market value and market share. We construct panel data from four
different data sources on public merging and non-merging U.S. manufacturing firms
for 1980-2003. Instrumental variables and factors such as R&D, patents, and citations
control for endogeneity. We find that mergers are positively correlated with stock-
market value and market share.

Keywords: Merger, Market Value, Market Share, R&D, Patent

JEL Classification Numbers: L10, L22, L40, O34

∗
We thank Mikko Packalen, Jason Allen, Brian Ferguson, participants at the 2014 Earie, and Department
of Economics’ seminar participants at the University of Guelph and University of Western Ontario for their
comments. We would also like to thank the anonymous referee for the valuable comments.
†
Corresponding Author: Assistant Professor, Department of Economics, Huron at University of Western
Ontario, 1349 Western Rd, London, ON, N6G 1H3, Canada. Email: menteza@uwo.ca.
‡
Professor, Department of Economics, University of Waterloo, 200 University Ave. West, Waterloo, ON,
N2L 3G1, Canada. Email: asen@uwaterloo.ca.
1 Introduction

Duke Energy CEO Jim Rogers explained the goal of the merger between Duke Energy and
Progress Energy as: “By merging our companies, we can operate more economically for our
customers, improve shareholder value and continue to grow.” Progress Energy CEO Bill
Johnson also said about the merger: “It makes clear, strategic sense and creates exceptional
value for our shareholders.”1
Improving shareholder value has often been cited as a key determinant for merger deci-
sions. Mergers change ownership, result in larger firms, and create a less competitive market.
Thus, they may indicate a potential for higher future profits and efficiencies (Becketti, 1986),
which in turn will increase share holder value via higher stock-market valuation and market
share (Golbe and White, 1988). Nevertheless, the theoretical and empirical literature on the
impacts of mergers on shareholder value provides mixed results.
On the theoretical side, Salant et al. (1983) focus on the merger-profit nexus and show
that mergers are profitable only if merging firms’ combined market share in the pre-merger
period is more than 80%. However, a merger of this magnitude in market shares is not
usually approved by anti-trust authorities. Perry and Porter (1985) provide evidence for
value creation by showing that mergers are profitable.
Theoretical studies on merger-induced changes in market share argue that when a merger
increases efficiency in one or both of the target and acquiring companies, we may expect to
observe lower product prices that generate expansion in the output of the merged company
compared to what would otherwise be observed (Mueller, 1997). On the other hand, a
merger can also increase market power, resulting in higher output prices and lower output
of the merged firm (Sheen, 2014). Following Farrell and Shapiro (1990), if the efficiency gain
dominates the market power increase, we will observe an increase in the market share of
1
“Duke, Progress to Merge”
(http://www.elp.com/index/display/article-display/6142111616/articles/utility-automation-engineering-
td/volume-16/issue-2/departments/notes/duke-progress-to-merge.html; last accessed 28 Mar. 2017).

1
the merged firm relative to the sum of the pre-merger market share of the merging parties.
McAfee and Williams (1992) show that the market share of the merged entity is less than
the combined market shares in the pre-merger period.
On the empirical side, Betton et al. (2008), Andrade et al. (2001), and Healy et al.
(1992) suggest that mergers do generate value. Betton et al. (2008) support value creation
for stock-holders; Andrade et al. (2001) support merger-induced efficiencies and improvement
in stock holder values of the merged entity; and Healy et al. (1992) show improvements in the
post-merger asset productivity. The literature offers various reasons for the value creation,
such as economies of scale (Fee and Thomas, 2004; Shahrur, 2005; Bhattacharyya and Nain,
2011), investment changes (Devos et al., 2009), productivity (Schoar, 2002), and advertising
expenditure changes (Fee et al., 2012). Previous studies do not reach a consensus on the
impact of mergers on market share. For instance, Packalen and Sen (2013), Pesendorfer
(2003), Baldwin and Gorecki (1990), and Mueller (1985) all find a negative effect from
mergers on market share. However, Gugler and Siebert (2007) find a positive effect, and
Goldberg (1973) finds no effect.
In light of the above mixed results in the literature, in this study, we investigate em-
pirically the impact of mergers on firms’ market value and market share. As part of our
contribution, we build a panel of more than 5,000 publicly traded U.S. manufacturing firms
from 1980 to 2003. This data set contains both merging and non-merging firms. A unique
aspect of our multi-industry data is that it has information not only on merged entities in the
post-merger period, similar to previous studies, but also on both target and acquiring firms
in the pre-merger period and the merging year. Thus, our data facilitate a comparison of the
market share and market value of the merged firm to the combined market share and market
value of merging parties in the pre-merger period. Since a merger can be endogenous due
to simultaneity bias, suggested in Rhodes-Kropf et al. (2005), we also use the instrumental
variable approach to mitigate possible biases.

2
 A number of other empirical studies with a focus on single industries examine the impact
of mergers on firm outcomes, such as load factor, capacity, R&D, and product prices (e.g.,
Gugler and Szucs, 2014; Szucs, 2014; Ashenfelter et al., 2011; Dafny, 2009; Chouinard and
Perloff, 2007; Gugler and Siebert, 2007; Pesendorfer, 2003; Coloma, 2002; Borenstein, 1990).
However, the single-industry analysis of merger outcomes may not be able to provide a
complete insight on potential outcomes of mergers. Particularly, Ashenfelter et al. (2014)
in a survey of 49 studies with mostly single-industry analysis, argue that the extent to
which findings from one industry can be generalized to another industry is limited. Thus,
our empirical multi-industry analysis of market value and market share outcomes of mergers
across industries of the manufacturing sector may also be more informative for understanding
the impacts of mergers.
Previous multi-industry empirical analyses of merger outcomes mostly examine the im-
pact of mergers on profit. For instance, Mueller (1985 and 1997), Ravenscraft and Scherer
(1989), Leeth and Borg (2000), Macksimovic and Phillips (2001), and Andrade et al. (2001)
all find that mergers are not particularly profitable. Goldberg (1973), Mueller (1985 and
1986, ch.9), Roll (1986), and Baldwin and Gorecki (1990) even find a decrease in profit as
a result of mergers. Jarrell and Poulsen (1989) and Jensen and Ruback (1983) show large
positive returns for target companies’ shareholders but Jensen (1988) finds only small re-
turns to acquiring firms’ share holders. Leeth and Borg (2000) uncover that acquiring firms’
merger-related returns are minor, in that they do not increase the acquirers’ market value
and may even decrease that value in the post-merger period.
Our results suggest a positive correlation between mergers and market value of firms.
The instrumented impacts of mergers on market value are comparable to non-instrumented
estimates. This result implies that mergers create value by their positive contribution to
expected profit of firms. The merger-induced changes in market share are positive and
statistically significant, which may imply a presence of merger induced synergies for firms

3
in the manufacturing sector. In summary, based on our novel constructed data set, we
offer some robust evidence and clarity on how firms’ market value and market share benefit
from mergers. These results may also be helpful for anti-trust authorities for their merger
assessments.

2 Empirical Framework

2.1 Mergers and Market Value

Firms participate in merger activities when the merger is a bargain and helps in creating
value for their shareholders (Golbe and White, 1988). As mergers are a change of ownership,
they may signal higher profit in future and consequently, a higher market value (Becketti,
1986). Therefore, we investigate the impact of mergers on acquiring firms’ market value.
Our empirical analysis is based on the following market value function of Griliches (1981)
and Hall et al. (2005):
M Vit = M SVit (T N Ait + γIN Ait )σ , (1)

where M Vit is the market value of firm i in year t, M SVit is the marginal shadow value
of assets, T N Ait is tangible assets, and IN Ait is intangible assets. According to Griliches
(1981), Hall et. al. (2005), and Hall (1988 and 1993), in addition to firms’ tangible assets,
intangible assets are important determinants of firms’ stock-market valuation, as intangible
assets also have influence on firms’ future cash flows.2
Following Hall et al. (2005), M Vit is constructed from the sum of the current market
value of common and preferred stocks, inflation-adjusted long-term debts, and short-term
debts of the firm net of assets, and the variable T N Ait is calculated from the sum of net plant
and equipment, inventories, investments in unconsolidated subsidiaries, and intangibles and
2
The benefit of using the functional form in equation (1) is the equalization of assets’ marginal shadow
value among firms (Hall et al. 2005).

4
others.3 Following Griliches (1981) and Hall et al. (2005), we use logarithmic transformation
of equation (1) to linearise the function in tangible and intangible assets and have an easier
estimation of impacts of assets on market value. Thus, equation (1) becomes4

 
IN Ait
logM Vit = logM SVit + σ logT N Ait + σ log 1 + γ . (2)
T N Ait

The variable logM SVit includes time fixed effects, mt , and the error term, it (Hall et al.,
2005). The coefficient γ measures the shadow price of the asset ratio IN Ait /T N Ait . Ac-
cording to Hall et al. (2005), the assumption of constant return to scale with respect to
tangible and intangible assets usually holds in a cross section. Therefore, the scale factor σ
turns into 1 in the market value function.
Moving logT N Ait to the left-hand side of equation (2) changes the left-hand side to
log( TMNVAitit ) or logqit , which is the logarithm of Tobin’s q of firm i in year t. Therefore,
equation (2) becomes
 
IN Ait
logqit = log 1 + γ + mt + it . (3)
T N Ait

Hall et al. (2005) argue that each firm’s intangible assets are formed through a knowledge-
creation process. Firms participate in R&D activities to obtain innovation. Patents of firms
catalogue the success of their R&D, and the citations received by each patent document
reflect the importance of the patent. The knowledge creation process, then, contributes to
the value of the firm. Thus, following Hall et al. (2005), we measure intangible assets with
knowledge intensity variables, which are R&D intensity (R&DSit /T N Ait ), patent intensity
(P atentSit /R&DSit ), and citation intensity (CitationSit /P atentSit ). Therefore, equation
3
All components of T N Ait are adjusted for inflation. The CPI urban U.S. index 1992 is used for inflation
adjustments (Source: http://www.bls.gov).
4
In this process, at first equation (1) becomes

logM Vit = logM SVit + σlog(T N Ait + γIN Ait ).

Then, following Hall et al. (2005), we factor out T N Ait , which results in equation (2).

5
(3) becomes

       
R&DS P atentS CitationS
logqit = log 1 + γ1 + γ2 + γ3
T N A it R&DS it P atentS it
+mt + it , (4)

where R&DSit , P atentSit , and CitationSit measure the stock of R&D, patents, and cita-
tions, respectively. These stock variables are built based on a declining balance formula with
the depreciation rate of 15%.5
To identify the impact of mergers on the market value of firms, we follow the approach of
Ashenfelter et al. (2009) and measure mergers with an indicator variable, DP ostM ergerit ,
which is equal to 1 in the post-merger period for merging firms and zero otherwise. Thus,
we augment equation (4) with DP ostM ergerit , which becomes

       
R&DS P atentS CitationS
logqit = log 1 + γ1 + γ2 + γ3
T N A it R&DS it P atentS it
+δ1 DP ostM ergerit + δ2 logSaleit + δ3 logSaleit−1

+δ4 logEmployeeit + δ5 horizontalit + δ6 V Cit

+αiq + mt + it . (5)

Following Noel and Schankerman (2013), Bloom et al. (2013), and Entezarkheir (2017), we
also include the firm level distributed sales (logSaleit and logSaleit−1 ) to control for the
effect of demand shocks in equation (5).
In the case of a merger, logSaleit is measured by the combined sale of the acquirer and the
target in the pre-merger period and the merging year and by the sale of the merged entity in
the post-merger period. This method facilitates a comparison of the effect of the combined
5
The formula used for building stock variables is Kt = (1 − δ)Kt−1 + f lowt , where δ is the depreciation
rate, Kt is the knowledge stock at time t, and f lowt stands for knowledge flow at time t (Hall et al., 2005). We
define the initial stock of knowledge variables as their initial sample value similar to Noel and Schankerman
(2013). Hall and Mairesse (1995) show that changing δ = 15% does not make a difference.

6
sales on market value in the pre-merger period to the sales effect on market value in the
post-merger period. It also takes into account firms that experience multiple mergers in the
same year or various years. Following Entezarkheir and Moshiri (2017), in the pre-merger
period and the merging year, if the primary four-digit standard industry classification (SIC4)
of the target and acquirer are the same, we assume that they are in the same market, and
the market demand is divided equally between them. We, therefore, employ the average of
their sales for the variable logSaleit . For firms with different SIC codes, we assume that
they are not in the same market but instead have their own market demands. Thus, we add
these sales to find the combined sales for logSaleit . For non-merging firms, logSaleit is the
sale of non-merging firm i in year t. The variable logSaleit−1 is a lag of logSaleit .6
We further control for the size of the firm (logEmployeeit ) in equation (5). Firm size is
expected to have a positive effect on market value, as size is a proxy for efficiency, which
might promote expected profit of the firm (Mansfield, 1968; Hannan and McDowell, 1984;
Saloner and Shepard, 1995). logEmployeeit is proxied by the number of employees and
measured similarly to logSaleit in terms of combining employee numbers of acquiring and
target companies.7 The indicator variables horizontalit and V Cit in equation (5) control
for the type of mergers. The variables take a value equal to 1 if mergers are horizontal or
vertical, and zero otherwise.8 Following Entezarkheir and Moshiri (2017), if the SIC codes of
the target and acquirer are the same in a merger, we assume that the merger is horizontal.
In the case that the SIC codes are not the same, mergers are either vertical or conglomerate
but our data do not provide identifying information on separating vertical mergers from
conglomerate mergers.
Horizontal mergers replace competing firms with a single firm. Thus, they have the
6
We considered higher order lags of the sale variable in our estimations but they were not statistically
significant.
7
As a robustness check, we also measure size with the logarithm of total assets in section 4.1.
8
The base group is the group of non-merging firms. 25% of mergers are horizontal and 75% are vertical
and conglomerate.

7
potential to change market concentration or improve cost efficiencies (Pepall et al., 2011,
p.314). Vertical mergers combine the production of complementary goods and improve
efficiencies (Riordan,1998). Conglomerate mergers combine firms with neither substitute
nor complementary products, and they may result in economies of scope and a decrease
in transaction costs (Pepall et al., 2011, p.344). All the resulting efficiencies from various
merger types may influence future expected profits and market value. Finally, αiq in equation
(5) is included to control for possible firm-specific unobserved heterogeneities.
We can estimate equation (5) with a non-linear least squares estimator, but following
Bloom et al.(2013), Noel and Schankerman (2013), and Entezarkheir (2017), it is easier
to substitute the non-linear terms with series expansions and estimate the equation with
a linear estimator. Employing series expansions facilitates the incorporation of firm fixed
effects. As a result, equation (5) becomes

       
R&DS P atentS
logqit = γ1 Φ log + γ2 ∆ log
T N A it R&DS it
   
CitationS
+γ3 Λ log + δ1 DP ostM ergerit + δ2 logSaleit
P atentS it
+δ3 logSaleit−1 + δ4 logEmployeeit + δ5 horizontalit

+δ6 V Cit + mt + αiq + it . (6)

The parameters Φ, ∆, and Λ denote the polynomials of the measures of knowledge intensity
variables. To control for unobserved firm heterogeneities, we estimate equation (6) using a
within estimator for panel data (Hall et al., 2005). Estimates of equation (6) imply that the
fifth order polynomials of knowledge intensity variables are satisfactory.9 We use equation
(6) to estimate the impact of mergers on market value.
It is plausible that a decision to merge is a response to increases in market value. Rhodes-
Kropf et al. (2005) in a theoretical paper find that Tobin’s q plays a role in merger activity
9
We do not consider the multiplicative terms of the measures of intangible assets in equation (6) because
they do not change the results.

8
because of firms’ mis-evaluation. If this is the case, then estimates based on equation (6) are
biased and inconsistent. To isolate the exogenous impact of mergers (DP ostM ergerit ) on
market value, we use previous merger experiences of acquiring firms as instruments, similar
to Entezarkheir and Moshiri (2017). According to Danzon et al. (2007), merger integrations
use resources and managerial efforts. Using previous merger experiences of acquiring firms
might be relevant instruments, because such firms go through the transition of another
merger much more easily as a result of their previous merger-integration experiences. The
previous merger experiences of firms can therefore be correlated with their current merger
decision. Moreover, the previous merger experiences of a firm might lead to economies of
scale and merger synergies, which might have lowered the firm’s costs. Thus, living through
the experience of previous efficiency improving mergers might create further incentives for
firms to participate in more mergers. However, the likelihood of an acquirer’s previous merger
experiences several years earlier, having an impact on its current market value should be very
small.
We employ three indicator variables as our instruments to measure previous merger
experiences and estimate equation (6) with an instrumental variable approach for panel
data. The first instrument is M erger2to5it , which takes a value equal to 1 if the acquiring
firm in a merger has experienced one or more mergers in the two to five years prior to
the merging year. The other two instruments are M erger3to5it and M ergerM oreT han5it ,
which take a value equal to 1 if the acquiring firm in a merger experienced another merger(s)
in the past three to five years and more than five years prior to the merger, respectively.

2.2 Mergers and Market Share

Previous studies on merger-induced changes in market share argue that mergers can raise
output due to increased synergies and can decrease output due to higher market power
(Sheen, 2014 and Mueller, 1997). To find the dominant effect, we examine the impact of

9
mergers on the market share of manufacturing firms in a multi-industry context. Employ-
ing an extension of the empirical specification in Packalen and Sen (2013), our estimating
equation is

logM Shareit = β0 + β1 DP ostM ergerit + β2 logR&Dit−1 + β3 logR&Dit−2

+β4 horizontalit + β5 V Cit + mt + αiM S + it . (7)

The market share of firm i in year t (logM Shareit ) is identified by the ratio of the firm
i’s sales in year t to total sales of the SIC4 that firm i belongs to in year t. This method
of calculating market share follows Blundle et al. (1999), who employ sales in the primary
SIC3, Giroud and Mueller (2010), who use sales in the primary SIC2 and SIC4, and Duso
et al. (2014), who utilize sales in the primary SIC4. We would have liked to build the
market share variable at a more disaggregate level, but our data only provide information by
SIC4. There are caveats in using the SIC4 classification in defining market share. Duso et al.
(2014) argue that this way of defining market share might generate lower bound estimates, as
the relevant anti-trust market might be smaller than the product markets defined by SIC4.
Nevertheless, studies based on public firm data sets rely on SIC codes for grouping firms as
this is available in data (Sheen, 2014). Following Entezarkheir and Moshiri (2017), in the
case of merging firms, we measure logM Shareit in the pre-merger period and the merging
year from the combined market share of the acquirer and target, and in the post-merger
period from the market share of the merged entity. The combining process of market shares
in the pre-merger and merging year periods is similar to logSaleit in section 2.1. For non-
merging firms, logM Shareit is the market share of non-merging firm i in year t. The variable
DP ostM ergerit is built in the same way as the merger variable in section 2.1.
We control for two lags of the logarithm of R&D expenditures of firms (logR&Dit−1
and logR&Dit−2 ) in equation (7) to capture differences in innovativeness across firms and
their impacts on market share as returns of R&D, following Gugler and Siebert (2007),

10
Duso et al. (2014), and Hall et al. (2010). The idea of considering the role of R&D in
the market share of firms goes back to Leonard (1979), which shows a positive correlation
between R&D expenditure and sales growth. Following Duso et al. (2014), R&D in general
influences market share positively. A justification might be related to the fact that R&D
is capturing the effect of firm size and larger firms haver larger market share. The lag of
R&D expenditure captures the possibility that R&D takes a while to show its effect on
market share (Mansfield, 1965; Pakes and Schankerman, 1984). Using horizontalit and V Cit
indicator variables of section 2.1, we control for the type of mergers. We control for horizontal
mergers as they result in larger and less competitive firms, which are likely to change market
concentration and market share (Pepall et al., 2011, p.314). Following Riordan (1992),
vertical and conglomerate mergers might also influence market share as they may result in
merger-induced synergies, economies of scope, and lower transaction costs. We estimate
equation (7) using a within estimator for panel data.

3 Data

This study combines four different data sources and forms a longitudinal data set on publicly
traded U.S. manufacturing firms from 1980 to 2003. The first data source is the updated
National Bureau of Economic Research (NBER) files on patenting and citations. These
files contain information on all USPTO utility patents granted from 1976 to 2006 (3,279,509
patents) and their received citations (23,667,977 citations).10 We use the information on
patents and their citations to build firm-specific intangible assets. The second data source,
which provides financial information on U.S. publicly traded firms, is the Compustat North
American Annual Industrial data from Standard and Poors.11
10
The updated NBER patent and citation data files are built by Bronwyn H. Hall, and they are available
at http://elsa.berkeley.edu/∼bhhall/.
11
The publicly traded firms are those traded on the New York, American, and regional stock exchanges,
as well as over-the-counter in NASDAQ.

11
 We employ a third data source, a company identifier file, to link the updated NBER patent
and citation files by firm names to the Compustat firms.12 This data source is required
because firms apply for patents either under their own name or under their subsidiaries’
names. The patent and citation files do not specify a unique code for each patenting firm.
However, Compustat has a unique code for each publicly traded firm. The link file contains
the assignee number of each patenting firm in its patent, and its equivalent identifier in the
Compustat data. Our fourth data source is the merger data from the Thompson Financial
SDC Platinum data base, which tracks completed mergers.
We merge the citation information, such as a count of citations made in each patent
document, from the citation file to the patent file. Then, in the resulting patent file, we
drop withdrawn patents and include only the patents of public firms granted from 1976 to
2006, so as to be able to match the results to the public firms in the Compustat data set.13
After these changes, the number of observations in the patent file is 1,355,677. We focus on
manufacturing firms (SIC 2000-3999) from the publicly traded U.S. firms in the Compustat
data from 1976 to 2006. This results in an unbalanced panel of 7,174 firms with 161,633
observations. The sample of publicly traded firms may not be fully representative of all firms
in the manufacturing sector; however, our choice is restricted by the availability of data.
In the next step, we attach the patent and citation information to the Compustat, em-
ploying the identifier file. Then, we drop some of the missing values on financial information
of firms, which leaves us with 77,909 observations on 6,679 unique firms from 1976 to 2006.
As a result of a gap between the application and grant date of patents, the data on
patents and their citations are truncated. Patents with an application date close to the
end of the sample might be granted out of the reach of the sample. Similarly patents in
the sample might receive further citations outside of the sample period. We correct for
12
The company identifier file is available at http://elsa.berkeley.edu/∼bhhall.
13
According to the USPTO’s website, withdrawn patents are the patents that are not issued
(http://www.uspto.gov/patents/process/search/withdrawn.jsp).
Note that the citation data are not limited to public firms.

12
these truncations and limit the combined Compustat and patent files to 1976-2003 to avoid
potential problems that might arise from the edge effects suggested by Hall et al. (2005).14
The edge effect means the ending years of the sample are not usable as they have more
variance due to estimation errors. Therefore, our sample is limited to where the data are
least problematic.
The SDC merger data set is from 1980 to the present. Considering our other employed
data sources, we use data on U.S. manufacturing target and acquiring firms from 1980 to
2003 in the SDC. Therefore, we have 1,566 unique acquiring firms and 2,075 unique target
firms in the SDC. In order to add the SDC merger data to the combined Compustat and
patent files, we hand-match each SDC acquiring and target firm’s name to the Compustat
names. We find 1,064 matches in acquiring names and 1,528 matches in target names to
the company names in the combined Compustat and patent files. We add the merger SDC
data to the combined Compustat and patent files, using our hand-matched names of the
acquiring companies to the Compustat firm names. This leaves us with 877 pair of mergers
with 6,741 observations, noting that some of the acquiring firms experience several mergers
during the sample period.15
The combined Compustat, patent, and SDC merger data set has observations for the
14
Following Hall et al. (2000), to correct for truncation in patent counts, we multiply patent counts in
ending years of the sample (2000 to 2003) with the inverse of the weight factors
patentt
patent∗t = P2003−t ,
k=0 weightk
2000 ≤ t ≤ 2003, (8)

where patentt is the number of patents granted at time t to all firms and weightk is built based on the
average of citations in each lag for the patents of firms. Lags are defined as the difference between the
ending years of the sample and year 2003. Therefore, lags are 2003-2000=3, 2003-2001=2, 2003-2002=1, and
2003-2003=0. To correct for truncations in citations, we have employed the method of Hall et al. (2000).
We calculate the distribution of the fraction of citations received by each patent at a time between the grant
year of the citing patents and the grant year of the cited patent. Using this distribution, we predict the
number of citations received for each patent outside the range of the sample, to a maximum of 40 years after
the grant date of the patent.
15
The SDC data also provide information on mergers of private acquirers. Nevertheless, the balance sheet
information in other standard data sources, such as Compustat, is not available for private firms. Following
Komlenovic et al. (2011) and Moeller et al. (2004), we do not consider private firms in the SDC data set.

13
acquiring companies in the pre-merger period and the merging year, the merged entity in
the post-merger period, and the target companies only at the merging year. To add the
pre-merger information of target companies, we use our SDC target names hand-matched
to the Compustat and locate each target’s information among Compustat firms for the
pre-merger period. Then, we again hand-match this located information on targets to the
combined Compustat and patent files for targets in the pre-merger period. Thus, in each
pair of merging firms, we observe both targets and acquirers in the pre-merger period and
the merging year. In the post-merger period, we observe merged entities. The resulting data
set, or our baseline sample, is an unbalanced panel of 5,327 manufacturing merging and non-
merging firms with 53,936 observations from 1980 to 2003. Of these firms, 877 participate in
merger activities. Nevertheless, the exact number of observations depends on the regression
model employed.
The time dimension of our panel (1980-2003) addresses Pautler’s (2003) concern that most
of the merger outcome analyses in a longitudinal multi-industry context focus on transactions
that occurred prior to the mid-1980s. Recently, some studies have undertaken multi-industry
analyses based on longitudinal data for more recent mergers. Gugler et al. (2003) study
merger-induced changes in profit and sales across different countries, but this study is not at
the firm level. Moeller et al. (2004) examine abnormal returns for shareholders of acquiring
companies in various industries, but they do not consider target firms. Malmendier et al.
(2012) also examine the impacts of mergers on abnormal returns, but they employ a sample
of contested mergers that may not be representative of the merger population.
To our knowledge, two other studies use data sources similar to ours. One is that of
Entezarkheir and Moshiri (2017), but they investigate the impact of mergers on innovation.
The other study, that of Sevilir and Tian (2012), also investigates the impact of mergers on
innovation; their sample analysis does not include pre-merger information on target compa-
nies and the non-merging firms. This lack in their study prevents them from making any

14
comparison of merger outcomes between merging and non-merging firms while controlling for
possible economic changes from the pre-merger to the post-merger period (Mueller, 1997).
Table 1 in the appendix presents the descriptive statistics of all variables. Figures 1 and
2 illustrates the average of the percentage change in Tobin’s q and market share of acquiring
and non-merging firms.

4 Results

4.1 Mergers and Market Value

To estimate the impact of mergers on Tobin’s q in the post-merger period, we estimate

equation (6) of section 2.1. Our results are reported in Columns (1) to (4) of Table 2.
The first and second columns in Table 2 are the base specifications, which show the effect of
mergers on Tobin’s q in isolation from the effect of other regressors but for firm and time fixed
effects. Column (3) adds R&D intensity, its fifth order polynomials, firm level distributed
sales, and employee numbers as a proxy for firm size. Column (4) includes all knowledge
intensity variables and their fifth-order polynomials to control for the impact of intangible
assets. We estimate all the models of Columns (1) to (6) of Table 2 using a within estimator
for panel data. The standard errors are all clustered at the firm level, and all models control
for the type of mergers with variables horizontalit and V Cit .
As Columns (1) to (4) of Table 2 show, the effect of merger on Tobin’s q is positive and
statistically significant except for Column (2). When we add the controls explained in section
2.1, the negative impact in Column (2) changes to positive in Columns (3) and (4). This
result indicates that on average the difference in the mean of Tobin’s q between merging and
non-merging firms has increased following a merger (the base group consists of non-merging
firms). One interpretation of this finding is that as mergers are a change of ownership, they
imply a higher future profit and consequently a higher market value and Tobin’s q. Thus,

15
mergers among manufacturing firms improve their share holder value.
From series expansions of intangible assets of firms in Column (4), R&DSit /T N Ait and
P atentSit / R&DSit , and CitationSit /P atentSit , lower orders of R&D and patent intensities
display a positive and statistically significant effect on stock-market valuation of firms but
in higher orders, their estimated coefficients are almost zero. Citation intensity does not
show any statistically significant effect on Tobin’s q in both lower and higher orders. To
interpret the coefficients of series expansions, following Noel and Schankerman (2013) and
Hall et al. (2005), the marginal stock market valuation of the logarithm of R&D intensity,
computed from the coefficients of the polynomial Φ(log R&DS


T N A it
), show that a 1% increase
in R&D intensity increases the logarithm of Tobin’s Q by 38%. Similarly, the market patent
premium from the coefficients of the polynomial ∆ log PR&DSatentS



it
is 4%. These results
imply that R&D and patent intensities have positive impacts on the future cash flows of
manufacturing firms, which conform to the results in Hall et al. (2005) for the manufacturing
sector, Noel and Schankerman (2013) for the software sector, and Entezarkheir (2017) for
the manufacturing sector.
The statistically significant effects of logSaleit and logSaleit−1 as controls for demand
shocks in Columns (3) and (4) show that the impact of possible inconsistencies due to
demand shocks on market value is alleviated by controlling for these variables.16 Contrary
to expectations, the impact of size measured by logEmployeeit is negative and statistically
significant in Columns (3) and (4).17 The negative impact of firm size (logemployeeit ) on
market value may imply that a larger, workforce is a signal of firm inefficiencies, which is
reflected in a decreased Tobin’s q. For example, Ratchford and Stoops (1998) and Amato
and Amato (2004) find evidence of dis-economies of scale for larger firms. This negative
impact might also be related to the fact that larger firms sometimes suffer more from agency
problems,18 and have less flexible structures. Thus, stock market does not necessarily count
16
Higher order lags of the firm-level sales were not statistically significant.
17
We acknowledge that the negative impact of logemployeeit should be studied more.
18
The agency problem theory refers to the potential for mischief when the goals of managers and owners

16
larger size as being beneficial, and that might explain lower Tobin’s q. Mule et al. (2015),
Rin and Shen (2012), and Blundell et al. (1999) all find a negative impact from firm size
on market value. As a robustness check, we also proxy size with total assets (logAssetit ) in
Column (5) of Table 2 rather than logEmployeeit . The impact of DP ostM ergerit on Tobin’s
q stays positive and statistically significant. The estimated coefficient of the logarithm of
the total asset is negative and statistically significant similar to the estimated coefficient of
logEmployeeit in Column (4) of Table 2.

4.1.1 Robustness Checks

There are possible caveats regarding our basic results in section 4.1. First, Mueller (1997)
argues that to examine the impact of mergers on outcome variables, the combined pre-merger
outcome variable of the target and acquirer in mergers must be compared to the outcome
of the merged entity in the post-merger period. Mueller further requires a comparison of
the merged company’s outcome to the outcome of non-merging firms to control for possi-
ble changes in economic conditions from the pre-merger period to the post-merger period.
Therefore, to examine the total expected gain of mergers for market value, we re-estimate
the model of Column (4) of Table 2, employing logJqit rather than logqit as our dependent
variable in Column (6) of Table 2. The difference between logqit and logJqit is that in the
case of a merger, the variable logqit does not combine target and acquiring firms’ Tobin’s q
in the pre-merger period and merging year; it uses only acquiring firms’ Tobin’s q for those
periods. However, the variable logJqit combines the Tobin’s q of acquiring and target com-
panies in the pre-merger period and merging year similar to the variable logSaleit , which is
explained in section 2.1. In the case of non-merging firms, both variables are equal to To-
bin’s q of firm i in year t. The results in Column (6) show that the positive and statistically
significant impact of mergers on market value persists, even when using a different measure
of firms do not align with each other. In such cases, managers may be able to gain higher rents than they
would have received from owners of the firm. For a more detailed explanation, see Dalton et al. (2007).

17
of our dependent variable. This result indicates that the merged entities Tobin’s q in the
post-merger period is more than the combined acquirer and target’s pre-merger Tobin’s q
compared to non-merging firms.
Second, another possible concern is that the positive effect of mergers on market value
is simply due to higher product market competition. Following Lindenberg and Ross (1981)
and Hirschey (1985), we use a logarithm of a Herfindahl index as a measure of product market
competition in equation (6). To build the index, we use the market share variable explained
in section 2.2. Since the estimated coefficient of our key variable DP ostM ergerit did not
change with and without the measure of product market competition, our estimates do not
reflect product market competition, and we do not include this variable in our empirical
estimations. We do agree that the Herfindahl index based on market shares at four-digit
SIC codes (explained in section 2.2) might not be a good estimator of product market
competition. However, this is the measure that can be built with our data set.19
The third concern is possible endogeneity in the impact of mergers on market value, as
discussed in section 2.1. To account for the endogeneity problem in our estimates, we employ
three indicator variables as our instruments using a panel IV estimator. The instruments are
19
The impact of a merger on Tobin’s q may not take place immediately after the merger, because firms
need time to adjust to the new conditions (Lee, 2009). As another sensitivity check and to capture the
dynamic effect of mergers on stock market value, to provide a potential insight into the degree of persistence
in profits over time, we include a lag of the dependent variable as an explanatory variable in equation
(6). This dynamic specification assumes that the adjustment to the new equilibrium position will occur
partially through time. We use the panel GMM method (Arellano and Bond,1991) to estimate the dynamic
panel model. In this method our instruments are lags of the dependent variable and are assumed to be
weakly exogenous. The results are reported in Column (7) of Table 2. The short-run effects of mergers on
market value is 0.466 (Std.Error=0.022). Following Moshiri and Duah (2016), assuming the steady-state
α
c1
condition, the long-run effect is calculated based on ( ), where α c1 is the estimated short-run effect
1−α c2
and α c2 is the estimated coefficient of the lagged dependent variable. The estimated long-run effect is 0.115
(Std.Error=0.042). Both the long-run and short-run effects are positive and statistically significant but the
short-run effect is stronger. These results imply that the impacts of mergers on stock market valuation of
firms persist in the post-merger period and that merging parties enjoy the contributed benefits of mergers to
their stock market valuation for a while. Nevertheless, the larger size of the impact in short-run implies that
the impact of mergers on expected profits materializes very fast. The change in the impact of logemployeeit
in the dynamic model of Column (7) might be related to the fact that once we include dynamic behaviour
in the impact of mergers on stock market valuation, the stock market counts the size of the firm as a proxy
for economies of scale and efficiency, and thus, Tobin’s q increases.

18
M erger2to5it , M erger3to5it , and M ergerM oreT han5it , which are explained in section 2.1.
Table 3 in the appendix presents the first and second-stage panel IV regression results across
Columns (1) to (3). The control variables are the same as equation (6) and they are all used
in both stages of all columns of Table 3. In Columns (1) to (3), the coefficient estimates
of all instruments are positive and statistically significant at the 1% level of significance.
This result conforms to the idea of Danzon et al. (2007) that firms with previous merger
experiences participate in more mergers, possibly because of improved managerial experience
and lower costs of integration. Additionally, the first-stage F-statistics are large enough to
mitigate concerns that the first stage estimates are unreliable. The large F of the first stage in
each column rejects the null hypothesis that the estimated coefficients of the instruments are
equal to zero. We also conducted a test of overidentifying restrictions for Column (3) of Table
3 employing Hansen’s J-test (1982). The null hypothesis of the exogeneity of instruments
could not be rejected. The amount of the test statistics is 0.624 and the P-value is 0.430.
These results suggest that the instruments we employ in Column (3) can explain variations
in decisions to merge, while remaining uncorrelated with error terms. The results obtained
from the second-stage IV estimations are consistent with those reported earlier in Table 2.
Specifically, the instrumented impacts of mergers on Tobin’s q in Table 3 are all positive and
statistically significant.
Fourth, following Entezarkheir and Moshiri (2017), time-varying differences among merg-
ing and non-merging parties in terms of their outcomes and characteristics in the pre-merger
period might be related to their merging decision and might also influence their outcomes
in the post-merger period. For example, if there is a change in management as a temporary
firm-specific shock, which influences merging firms’ outcomes positively, target and acquir-
ing firms might also perform better in the post-merger period. Therefore, merging firms
should be compared with non-merging firms with similar characteristics to ensure that the
comparison presents an adequate reflection of non-merging outcomes for merging firms.

19
 We follow Bandick et al. (2014), Szucs (2014), and Valentini (2012) and combine the
difference-in-difference (DID) method with the propensity-score matching (PSM) method for
our panel data to perform a comparison of merging firms with non-merging firms with similar
pre-merge characteristics. Ideally, we would like to compare the Tobin’s q of merging firms
to their Tobin’s q if they had not merged. However, we do not have such information. To
find a replacement for the missing counterfactual, we compare the Tobin’s q of merging firms
to the Tobin’s q of non-merging firms. We build a sample of merging and non-merging firms
with similar pre-merger characteristics using the PSM approach. To alleviate the impact of
firm unobserved heterogeneities, we have the DID aspect of our DID PSM method.
To proceed with our DID PSM method, at first, we estimate the propensity score, while
including logSaleit−1 , logSaleit−2 , and logEmployeeit−1 in a probit model. Our depen-
dent variable is the treatment variable DP ostM ergerit . The explanatory variables of the
propensity score equation are selected based on the empirical literature on driving factors of
mergers, such as Rhodes-Kropf and Viswanathan (2004) and Komlenovic et al. (2011). The
explanatory variables are in lagged format, as they take some time to influence the merger
decision. Following Bandick et al. (2014), we further control for time and industry in the
propensity score equation to make sure that the matched control observations are assigned
only from the same year and industry as each merging firm. The estimated coefficients of
logSaleit−1 , logSaleit−2 , and logEmployeeit−1 are all positive but logSaleit−2 is not statis-
tically significant. In the next step, using the nearest-neighbour method, we calculate the
average treatment effect on treated (ATT). In the matching process, the average absolute
bias before matching is 90.5% and after matching is 4.4%.20 To check that each explanatory
variable does not vary significantly between merging and non-merging firms, we investigate
the balancing condition. We also test the common support condition, under which firms
20
Following Rosenbaum and Rubin (1985), the bias is defined as the difference of the mean values of the
treatment group and the control group, divided by the square root of the average sample variance in the
treatment group and the not matched control group. Our results are robust to other matching techniques,
such as Kernel matching.

20
with the same characteristics have a positive probability of being in both the treatment and
non-treatment groups.21 Our outcome variable is the difference of the averages of logqit in
the pre-merger and the post-merger periods, considering the panel nature of our data set.
The ATT result using DID PSM is 0.012 (Std.Error=0.004), indicating that both the bal-
ancing and common support conditions are satisfied. This result shows that we still find a
positive and statistically significant impact from mergers on market value in comparison to
the results in Table 2, although the size of the impact is smaller here.22

4.2 Mergers and Market Share

We investigate the impact of mergers on market share employing equation (7) of section
2.2. Table 4 reports the results. The first and second columns in Table 4 are the base
specifications, which show the effect of mergers on market share in isolation from the effect
of other regressors but for firm and time fixed effects. Column(3) also controls for the type of
mergers. Column (4) adds the first and second lags of the logarithm of R&D expenditures,
following Gugler and Siebert (2007) and Duso et al. (2014). Column (5) includes one lag
of the dependent variable in equation (7) to estimate the long-run and short-run effects of
mergers on market share. We estimate all the models of Table 4, except for Column (5),
using a within estimator for panel data. Column (5) is estimated with the dynamic panel
estimator of Arellano and Bond (1991). The standard errors are all clustered at the firm
level.
As Table 4 shows, the effect of merger on market share is positive and statistically
significant across Columns (1) to (4). This result implies that the merged entity’s market
21
To check for the common support condition, we compare the min and max values of the propensity score
in both target and control groups. For details on this method, see Caliendo and Kopeinig (2008).
22
Following Table 1 in the appendix, some of the variables, including market value (M Vit ) and book value
(T N Ait ) are very dispersed. To address the robustness of our findings to this dispersion, we remove the
observations in the first and 99th percentiles and re-estimated the model of Column (4) in Table 2. The
impact of merger on market valuation stays positive and statistically significant (0.048, Std.Error=0.023).
The estimated impact is only slightly different from the estimated effect in Column (4) of Table 2 (0.044, Std.
Error=0.023). We have similar results, when we remove observations in the second and 98th percentiles.

21
share in the post-merger period is more than the combined acquirer and target’s pre-merger
market share. One interpretation of this finding is that, on average, merger-induced synergies
are present for manufacturing firms. In other words, this result may indicate that efficiencies
dominate market power as a source of merger profits.23
To estimate short-run and long-run effects of mergers on market share, we include a
lag of the dependent variable (logM Shareit−1 ) in equation (7) of section 2.2. This dynamic
specification assumes that the adjustment to the new equilibrium position will occur partially
through time. We use the panel GMM method (Arellano and Bond,1991) to estimate the
dynamic panel model. In this method our instruments are lags of the dependent variable
and are assumed to be weakly exogenous.
Column (5) of Table 4 illustrates the short-run impact of mergers on market share as
0.440 (Std.Error=0.046). We also estimate the long-run effect similar to footnote 19. The
estimated long-run effect is 0.08 (Std.Error=0.050). Both short-run and long-run impacts of
mergers on market share are positive and statistically significant, and the short-run effect
is stronger. The finding thus provides evidence for the study of Farrell and Shapiro (1990)
that merging firms can regain their combined market share of the pre-merger period.

5 Conclusion

Some of the most-mentioned benefits of mergers are higher market share and shareholder
value, as well as improved efficiencies. Anti-trust authorities are also interested in merger
outcomes for their merger assessments. The theoretical literature investigating the benefits of
mergers for firm outcomes is ambiguous. This lack of consensus on effects of mergers carries
into the empirical research on mergers. A large body of the empirical literature investigates
23
As a robustness check of our findings, we also remove the observations of the market share variable that
are greater than one and are explained in the Note of Table 1 in the appendix. Then, we re-estimate the
model in Column (4) of Table 4 based on this sample. The estimated coefficient of merger (DP ostM ergerit )
does not change and stays the same as Column (4).

22
merger outcomes in a context of single industries, which may not provide enough information
for anti-trust assessments. Notably, findings from one industry are limited to the extent to
which they can be generalized to another (Ashenfelter et al. 2014). Thus, studies in a
multi-industry context may provide policy-makers with more insights on merger outcomes.
Nevertheless, multi-industry studies also provide varying results on merger outcomes. The
literature provides little clear evidence that mergers have systematically resulted in benefits
for firms and losses for consumers.
This study investigates the effects of mergers on firm-specific market value and market
share. The main contribution of this study is premised on the construction of a longitudinal
data set of merging and non-merging U.S. manufacturing firms in a multi-industry context
from 1980 to 2003. A unique aspect of our data set is that it has information not only on
merged entities in the post-merger period, similar to previous studies, but also on both target
and acquiring firms in the pre-merger period and the merging year. This aspect assists us in
comparing the market share and market value of the merged firm to the combined market
share and market value of merging parties in the pre-merger period. The panel nature of the
data helps us to mitigate potentially confounding effects from unobserved heterogeneities in
merger outcomes.
Our results show a positive correlation between mergers and stock-market valuation of
firms. This positive impact persists after addressing possible simultaneity bias in an in-
strumental variable approach using previous merger experiences of acquiring firms as our
instruments. Our findings provide evidence for merger-induced improvements in shareholder
values, as suggested by Golbee and White (1988) and Becketti (1986). We also find a pos-
itive impact from mergers on market share, indicating that merger-induced efficiencies may
be present for manufacturing firms. In summary, our study offers some robust evidence and
clarity on how firms benefit from mergers in terms of market value and market share.

23
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Appendix: Figures and Tables

Figure 1: Average of %4q of Merging and Non-Merging Firms.

Figure 2: Average of %4Market Share of Merging and Non-Merging Firms.

31
 Table 1: Descriptive Statistics

Variable Description Obs Mean Median Std.Error Min Max

M Vit Market Value 53936 752 32 3560 0.003 135045
T N Ait Book Value 53936 996 37 4696 0.001 134448
qit (M Vit 53936 4 0.80 85 0.000 10322
/T N Ait )
DP ostM ergerit Indicator for 53936 0.12 0 0.33 0 1
Pot-Merger Period
M Shareit Joint Market 53781 0.09 0.010 0.17 0 2.2
Share of Acquirer
and Target
Saleit Joint Net Sales 53786 1515 75 7505 0 232571
of Acquirer ($M)
and Target
Employeeit Joint Employee 49758 8 1 28 0.001 813
of Acquirer and
Target (Thousand)
R&Dit R&D Expenditure 53936 4567 0.98 271.8 0.00 9289
Inflation Adjusted
R&DSit Stock of R&D 53936 182 3.11 1155 0 37430
P atentSit Stock of Patents 53936 70 0 557 0 29355
CitationSit Stock of Citations 53936 842 0 5803 0 172358
(R&DS/ R&D Intensity 53936 2.82 0.13 65.31 0 7201
T N A)it
(P atentS/ Patent Intensity 53936 0.51 0 8.34 0 1363
R&DS)it
(CitationS/ Citation Intensity 53936 5.48 0 13.94 0 930
P atentS)it
horizontalit Indicator for 53936 0.004 0 0.063 0 1
Horizontal
Mergers
V Cit Indicator for 53936 0.012 0 0.110 0 1
Vertical and
Conglomerate
Mergers
M erger2to5it Indicator for 53936 0.04 0 0.18 0 1
Acquiring Firms
Merged in the
Past 2-5 Years

Table 1 Continued

32
M erger3to5it Indicator for 53936 0.03 0 0.16 0 1
Acquiring Firms
Merged in the
Past 3-5 Years
M ergerM ore Indicator for Acquiring 53936 0.03 0 0.16 0 1
T han5it Firms Merged in More
than 5 Years Ago
Note: The market share variable is sometimes larger than 1. The reason is that the acquirer
obtains several targets, and those targets’ pre-merger information overlaps in some of the
years. In overlapping years, we add the pre-merger market share if the targets are not in the
same industry, and we average their market shares if targets are in the same industry.

33
 Table 2: Mergers and Market Value

(1) (2) (3) (4) (5) (6) (7)

Dependent logqit logqit logqit logqit logqit logJqit logqit
Variable Arellano-
Bond
Estimator
DP ostM ergerit 0.080*** -0.106*** 0.041* 0.044* 0.050** 0.046* 0.061**
(0.019) (0.022) (0.023) (0.023) (0.023) (0.023) (0.022)
logqit−1 0.466 ***
(0.022)
log( R&DS )
T N A it
0.314*** 0.321*** 0.312*** 0.319*** 0.534***
(0.013) (0.013) (0.013) (0.014) (0.019)
[log( R&DS ) ]2
T N A it
0.069*** 0.069*** 0.071*** 0.069*** 0.078***
(0.004) (0.004) (0.004) (0.004) (0.005)
[log( R&DS ) ]3
T N A it−1
0.003*** 0.003*** 0.003*** 0.003*** -0.001
(0.001) (0.001) (0.001) (0.001) (0.001)
[log( R&DS ) ]4
T N A it−1
-0.000*** -0.000*** -0.000*** -0.000*** -0.001***
(0.000) (0.000) (0.000) (0.000) (0.000)
[log( R&DS ) ]5
T N A it−1
-0.000** -0.000** -0.000** -0.000** (0.000)
(0.000) (0.000) (0.000) (0.000)
log( PR&DS
atentS
)it 0.043*** 0.033** 0.040*** 0.014
(0.012) (0.012) (0.011) (0.009)
[log( PR&DS
atentS
)it ]2 0.000 -0.003 0.002 0.004
(0.006) (0.006) (0.005) (0.005)
[log( PR&DS
atentS
)it−1 ]3 -0.001 -0.001 -0.001 -0.000
(0.001) (0.001) (0.001) (0.001)
[log( PR&DS
atentS
)it−1 ]4 0.000 0.000 0.000 -0.000
(0.000) (0.000) (0.000) (0.000)
[log( PR&DS
atentS
)it−1 ]5 0.000 0.000 0.000 -0.000
(0.000) (0.000) (0.000) (0.000)
log( CitationS )
P atentS it
0.036 0.006 0.030 -0.009
(0.055) (0.052) (0.055) (0.031)
[log( CitationS ) ]2
P atentS it
-0.013 -0.007 -0.010 -0.001
(0.027) (0.025) (0.027) (0.022)
[log( CitationS ) ]3
P atentS it−1
-0.003 -0.002 -0.002 -0.003
(0.003) (0.003) (0.003) (0.004)
Table 2 is
Continued

34
[log( CitationS ) ]4
P atentS it−1
0.001 0.001 0.001 -0.000
(0.015) (0.001) (0.001) (0.001)
[log( CitationS ) ]5
P atentS it−1
-0.000 0.000 -0.000 0.000
(0.000) (0.000) (0.000) (0.000)
logEmployeeit -0.080 *** -0.073*** -0.070*** 0.080***
(0.017) (0.017) (0.016) (0.021)
logAssetit -0.128***
(0.015)
horizontalit -0.131*** -0.092* -0.067* -0.063* -0.004 0.330*** -0.019
(0.040) (0.038) (0.037) (0.037) (0.038) (0.057) (0.032)
V Cit -0.013 0.026 0.023 0.025 0.016 0.731*** 0.005
(0.024) (0.024) (0.021) (0.021) (0.021) (0.044) (0.019)
logSaleit 0.077*** 0.078*** 0.097*** 0.076*** 0.017
(0.013) (0.013) (0.012) (0.012) (0.012)
logSaleit−1 -0.046 *** -0.044*** -0.032*** -0.043*** -0.021**
(0.010) (0.002) (0.010) (0.009) (0.010)
D(R&Dit = 0) 0.214** 0.217** 0.197** 0.224 ** 0.002
(0.075) (0.075) (0.074) (0.074) (0.049)
D(P atentit = 0) 0.069 0.018 0.073 -0.052*
(0.050) (0.049) (0.051) (0.031)
Firm FE Yes Yes Yes Yes Yes Yes Yes
Time FE No Yes Yes Yes Yes Yes Yes
Observation 53935 53935 32215 32215 33508 32215 26292
Notes: The signs ***, **, and * mean significance at 1%, 5%, and 10%, respectively. The numbers in parentheses
are the cluster-robust standard errors (clustered at the firm-level). These specifications are based on equation (6).
Firm FE stands for firm fixed effects, and Time FE stands for time fixed effects.

35
 Table 3: Panel IV Estimates of Mergers and Market Value

First-Stage IV (1980-2003)
Dependent Variable (1) (2) (3)
DP ostM ergerit
F 76 54.86 48.14
P-value [0.000] [0.000] [0.000]
M erger2to5it 0.440***
(0.016)
M erger3to5it 0.359*** 0.357***
(0.017) (0.018)
M ergerM oreT han5it 0.270***
(0.023)
Second-Stage IV (1980-2003)
Dependent Variable
logqit
DP ostM ergerit 0.135** 0.117* 0.149**
(0.048) (0.062) (0.067)
Control Variables Yes Yes Yes
in Equation (6)
Firm FE Yes Yes Yes
Time FE Yes Yes Yes
Observation 30651 30651 30651
Overidentifying 0.624
Restrictions [0.430]
J-test and P-value
Notes: The signs ***, **, and * mean significance at 1%, 5%, and 10%,
respectively. The numbers in the parentheses are the cluster-robust
standard errors (clustered at the firm-level). Firm FE stands for
firm fixed effects, and Time FE stands for time fixed effects.

36
 Table 4: Mergers and Market share

Dependent Variable (1) (2) (3) (4) (5)

Arellano-Bond
logM Shareit Estimator
Dpostmergerit 0.591*** 0.530*** 0.491*** 0.348*** 0.045
(0.041) (0.045) (0.046) (0.047) (0.028)
logM Shareit−1 0.440***
(0.046)
logR&Dit−1 0.297*** -0.004
(0.021) (0.012)
logR&Dit−2 0.177*** -0.013
(0.019) (0.012)
horizontalit -0.243*** -0.451*** -0.415***
(0.060) (0.059) (0.059)
V Cit 0.486*** 0.305*** 0.349***
(0.066) (0.042) (0.036)
Firm FE Yes Yes Yes Yes Yes
Time FE No Yes Yes Yes Yes
Observation 52591 52591 52591 30397 24749
Notes: The symbols ***, **, and * mean significance at 1%, 5%, and 10%, respectively. The
numbers in parentheses are the cluster-robust standard errors (clustered at the firm-level).
Firm FE stands for firm fixed effects, and Time FE stands for time fixed effects.

37

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