Ralph Sonenshine
American University, CAS, Department of Economics, Faculty Member
- Combines an academic background in industrial organization, international economics, and financial economics with business consulting and industry research expertiseedit
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The welfare implications of vertical mergers have been a subject of disagreement for decades. Similar to horizontal mergers, economists need to weigh the efficiency gains relative to the market power concerns when considering the... more
The welfare implications of vertical mergers have been a subject of disagreement for decades. Similar to horizontal mergers, economists need to weigh the efficiency gains relative to the market power concerns when considering the competitive effects of vertical mergers. However, in vertical mergers, regulators are also concerned with other potential harmful effects, such as input and customer foreclosure. Using an event style technique, this paper explores these vertical theories of harm by comparing the abnormal returns of acquirers, targets, and the two combined in vertical and horizontal mergers that were challenged by regulators as potentially anticompetitive. Our results indicate that abnormal returns to targets were similar between vertical and horizontal mergers, but the gains to targets relative to acquirers were far higher in vertical versus horizontal mergers (53.6% versus 39.5%). In addition, we found that exclusionary effects have a positive impact (0.24% of the dollar a...
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1 I am grateful to Robert Feinberg for significant contributions regarding the specifications and explanation of the results. Kara Reynolds and Walter Parker also provided input into this paper.
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In the late 1990s many US states deregulated their electric utilities, allowing for competition among power generators. As a result there was a significant merger wave among large utility companies. To-date the effect of utility... more
In the late 1990s many US states deregulated their electric utilities, allowing for competition among power generators. As a result there was a significant merger wave among large utility companies. To-date the effect of utility deregulation on electricity prices is unclear, as are the benefits to merging utility companies. This study examines these effects by analyzing statewide electricity price changes among deregulated and regulated states from the period 2001 through 2012. In addition, the study examines post-merger abnormal returns relative to a basket of utility stocks among acquiring firms over this time period. The findings are that utility deregulation initially had little effect on electricity prices, but later, in the years during and after the financial crisis, electricity prices in deregulated states grew at a slower rate than they did in regulated states. In addition, we find that the initial abnormal returns to the merging firms were high as investors believed firms ...
This paper revisits the determinants of CEO compensation using recent data (covering 125 firms from 2003 to 2012) spanning the 2008 financial crisis. Overall, consistent with earlier studies, we find firm size and board composition to be... more
This paper revisits the determinants of CEO compensation using recent data (covering 125 firms from 2003 to 2012) spanning the 2008 financial crisis. Overall, consistent with earlier studies, we find firm size and board composition to be the most consistent indicators of CEO pay. However, pay becomes more performance-oriented in the years after the financial crisis, which may reflect tighter governance. We give particular attention to the role played by changes in the CEO’s scope due to mergers and divestitures – the latter has seldom been considered before. We also investigate how these factors differ by industry.
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With globalization and deregulation, the financial services industry in many areas has consolidated significantly since the mid-1990s. What drove financial services mergers among key segments and geographic regions? This paper uses a... more
With globalization and deregulation, the financial services industry in many areas has consolidated significantly since the mid-1990s. What drove financial services mergers among key segments and geographic regions? This paper uses a comprehensive data set comprising 1,434 mergers in 62 countries from 1995-2011 to explore empirically the motivations behind financial services mergers, examining the factors that impact the deal premium paid to effectuate the merger. We find stronger regulatory environments, especially lower corruption, to have a positive effect on the synergies projected to arise from financial services mergers. In contrast, higher financial freedom levels were found to have a negative impact on the deal premium. Also, higher measured levels of legal protection are associated with higher deal premiums in banking mergers, though the opposite is true for insurance. Acquirers also pay higher premiums to purchase targets that are relatively small and easier to integrate. ...
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A key tenet of economic theory is that the economic actor who pays the tax is not necessarily the same as the actor who bears the burden of a tax. Tariffs, like any tax, result in higher domestic prices. The question is whether tariffs... more
A key tenet of economic theory is that the economic actor who pays the tax is not necessarily the same as the actor who bears the burden of a tax. Tariffs, like any tax, result in higher domestic prices. The question is whether tariffs completely pass through to domestic prices, or whether foreign producers will bear part of the burden. This study seeks to shed light on this issue by assessing how tariff rate pass-throughs vary with product differentiation and buyer market concentration. The study covers selected manufacturing sectors from 1996 to 2015, a period when tariff rates were declining. We find that tariffs pass through incompletely to import prices in more differentiated domestic product-markets. We also find tariffs incompletely pass through in more concentrated product markets, but tariffs will completely pass through in more commodity-oriented product-markets, as buyer market concentration increases.
ABSTRACT This paper contributes further empirical evidence on the effects of mergers on innovation using company level data. Evidence on this issue has implications for the relationship between innovation and market concentration. Our... more
ABSTRACT This paper contributes further empirical evidence on the effects of mergers on innovation using company level data. Evidence on this issue has implications for the relationship between innovation and market concentration. Our departure from previous work is that we focus on a sample of horizontal mergers whose market concentration impacts were flagged by U.S. antitrust authorities as potentially posing a problem for antitrust law compliance. We employ propensity score matching and difference-in-differences estimation to compare the innovation activities of challenged and non-challenged merger firms to a control group of non-merged firms. We use R&D, patent grants, and citation-weighted patent grants to measure the innovation activities of firms before and after a merger. Our results indicate that the post-merger innovation outcomes of firms whose mergers were challenged are lower than they would have been had the firms not merged. But for non-challenged mergers, or mergers that do not raise concerns about market concentration, post-merger innovation outcomes are not significantly different from what they would have been without a merger.
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Many empirical studies have shown negative abnormal returns to occur shortly after a once promising merger is consummated. There are few consistent explanations for the poor performance of so many mergers. This article considers mergers... more
Many empirical studies have shown negative abnormal returns to occur shortly after a once promising merger is consummated. There are few consistent explanations for the poor performance of so many mergers. This article considers mergers of concern to antitrust authorities to examine how structural factors, including market concentration and R&D intensity, as well as valuation metrics, such as merger premiums and merger waves, affect abnormal returns. Our results suggest that acquirer R&D intensity, market concentration of the deal premium, and deal size have a negative impact, whereas the target's intangible asset intensity and the presence of a merger wave positively influence merger performance.
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Abstract: In the late 1990s, many U.S. states deregulated electric utilities, allowing for competition among power generators. Deregulated states then adopted retail choice programs, allowing customers to choose their power provider. In... more
Abstract: In the late 1990s, many U.S. states deregulated electric utilities, allowing for competition among power generators. Deregulated states then adopted retail choice programs, allowing customers to choose their power provider. In addition, a significant merger wave among large utilities ensued. How did these events impact consumer welfare? This study examines the effects of utility deregulation and mergers, by analyzing electricity price and output changes among deregulated and regulated states. I find that deregulation may have had a positive effect when states adopted certain measures, such as retail choice or fuel changes, that enhanced competition and lowered costs. Mergers also affected consumer welfare, with differential impacts found between the merger of generation firms versus the merger of generation and transmission companies.
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A number of empirical studies have shown that negative abnormal returns often result shortly after a once promising merger is consummated. There are few consistent explanations, however, as to why so many mergers result in such poor... more
A number of empirical studies have shown that negative abnormal returns often result shortly after a once promising merger is consummated. There are few consistent explanations, however, as to why so many mergers result in such poor performance. This paper sheds light on this issue by examining the effect that structural factors (including market concentration and R&D intensity) have on post-merger abnormal returns. The paper also attempts to assess how differences in valuation among bidders, along with the presence of multiple bidders, influencethe performance of the merged firm. Our findings show that firm value is positively impacted in the first one to three years post merger by acquiring related assets, but that participating in a merger wave in these years has a negative influence. Over longer periods of time these effects are not evident and instead post-merger performance is impacted foremost by intangible asset intensity.
This study examines the pattern of abnormal returns for merging companies and rivals to determine investor expectations regarding the impact of horizontal mergers challenged by the government. Prior studies have indicated that the... more
This study examines the pattern of abnormal returns for merging companies and rivals to determine investor expectations regarding the impact of horizontal mergers challenged by the government. Prior studies have indicated that the government may have challenged efficiency-enhancing mergers as evidenced by the pattern of abnormal returns to rivals during merger events. This study examines those patterns using challenged mergers from 1997 to 2007, and it adds to the literature by assessing the effect that R&D intensity and change in HHI have on the returns to rivals and merging firms. The paper finds that the pattern of abnormal returns is a result of the different effects that antitrust complaints and merger outcomes have on rivals based on R&D intensity and change in industry concentration. This finding suggests that the government may have been properly vigilant in challenging mergers over the past 10 years in basic industries that have high levels of market concentration. However,...
It is well documented that acquirers often pay a very large premium to acquire companies in related industries. There are many explanations as to the source of this premium. This study isolates two variables, R and D-intensity and market... more
It is well documented that acquirers often pay a very large premium to acquire companies in related industries. There are many explanations as to the source of this premium. This study isolates two variables, R and D-intensity and market concentration, and correlates their value individually and jointly to the value of the acquired company. The results indicate that change in market concentration and Research and Development is positively correlated to the merger deal premium in a horizontal merger. Furthermore, deal premiums tend to follow an inverted U curve pattern relative to market concentration change. The study also shows that cost synergies and macro economic growth impact deal premium values.
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ABSTRACT Many empirical studies have shown negative abnormal returns to occur shortly after a once promising merger is consummated. There are few consistent explanations for the poor performance of so many mergers. This article considers... more
ABSTRACT Many empirical studies have shown negative abnormal returns to occur shortly after a once promising merger is consummated. There are few consistent explanations for the poor performance of so many mergers. This article considers mergers of concern to antitrust authorities to examine how structural factors, including market concentration and R&D intensity, as well as valuation metrics, such as merger premiums and merger waves, affect abnormal returns. Our results suggest that acquirer R&D intensity, market concentration of the deal premium, and deal size have a negative impact, whereas the target's intangible asset intensity and the presence of a merger wave positively influence merger performance.