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Firm-specific time preferences and postmerger firm performance

Author

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  • Harris, Jeremiah
  • Siebert, Ralph
Abstract
This study investigates the role of firm-level discount factors in evaluating the impact of mergers on market outcomes. Discount factors reflect time preferences for future cash flows and are used to determine the present value of investment projects such as mergers. Firm-specific discount factors imply that firms may attach different present values to mergers. We elicit firm-specific time preferences and identify firms’ discount factors using firm-specific production data while building on the existence of learning-by-doing in the semiconductor industry. Our estimation results show that firm-specific discount factors explain firms’ production decisions. We also find that firms’ discount factors and merger acquisition strategies explain heterogeneous merger outcomes. Our results show that acquiring firms characterized by low discount factors (impatient firms) are highly efficient and merge with highly efficient and innovative firms. Impatient acquirers achieve relatively higher efficiency gains in the short run than patient acquirers and adopt acquisition strategies that put more weight on achieving instant efficiency gains. In contrast, patient acquirers are least efficient and merge with firms that are larger than themselves. Patient acquirers place more value on achieving efficiency gains in the more distant future.

Suggested Citation

  • Harris, Jeremiah & Siebert, Ralph, 2017. "Firm-specific time preferences and postmerger firm performance," International Journal of Industrial Organization, Elsevier, vol. 53(C), pages 32-62.
    • Handle: RePEc:eee:indorg:v:53:y:2017:i:c:p:32-62
    DOI: 10.1016/j.ijindorg.2017.04.001
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    Cited by:

    1. Ralph Siebert, 2017. "Heterogeneous Merger Impacts on Competitive Outcomes," CESifo Working Paper Series 6607, CESifo.
    2. Michi NISHIHARA, 2020. "Preemptive competition between two firms with different discount rates," Discussion Papers in Economics and Business 20-04, Osaka University, Graduate School of Economics.
    3. Meilin Ma & Ralph Siebert, 2021. "The Impact of Private Label Introduction on Assortment, Prices, and Profits of Retailers," CESifo Working Paper Series 9380, CESifo.
    4. Ralph B. Siebert, 2019. "Estimating Differential Dynamic Merger Effects on Market Structure and Entry in Related Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 431-458, November.
    5. Liu, An-Hsiang & Siebert, Ralph B., 2022. "The competitive effects of declining entry costs over time: Evidence from the static random access memory market," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    6. Linde, Sebastian & Siebert, Ralph B., 2023. "Exploring the incremental merger value from multimarket and technology arguments," International Journal of Industrial Organization, Elsevier, vol. 87(C).
    7. Wolfgang Breuer & Bushra Ghufran & Astrid Juliane Salzmann, 2020. "Investors' time preferences and takeover performance," Post-Print hal-02508909, HAL.
    8. Breuer, Wolfgang & Ghufran, Bushra & Salzmann, Astrid Juliane, 2020. "Investors' time preferences and takeover performance," International Review of Financial Analysis, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Discount factor; Discount rate; Dynamic oligopoly model; Market performance; Mergers and acquisitions; Semiconductor industry;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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