Identifying synergy in vertical merger and acquisition : the synthetic firm method

Abstract

This research investigates the completed vertical merger and acquisition during 1998-2010 in five year windows both of before and after merger and acquisition whether the synergy demonstrates through the abnormal return and operating performance during the study period. According to this research, I exploit a new approach in which the most similarity of firm affects the return of firms: one set of the firm requires the actual merger and acquisition deals, while the other set requires the synthetic of the actual merger and acquisition deals. In this paper uses two model to demonstrate the existing of synergy and confirm that it can add more value to the acquirers. The results demonstrate the significantly negative abnormal return and the performance of the actual vertical merger and acquisition firms after making merger and acquisition deal. The results also examine the dark side of the merger and acquisition which relate to the conflict of interest between shareholders and their managers.