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Title:
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| Number: | 05-22 |
| Author: | |
| Issue Date: | August 2005 (revised April, 2007) |
| Abstract: | This
paper shows that internal capital reallocation between merging partners
can improve the profitability of horizontal mergers. We find that
merged firms often optimally choose the multidivisional structure (the
M-form) rather than the conventional structure of completely
integrating merging partners. Under the M-form, mergers not only
combine merging partners’ capital, but also allow the merged firm to
reallocate that capital in an efficient way. Since the horizontal
merger is profitable due to this efficiency-improving capital
reallocation, the merger enhances market competition as well. We
discuss the conditions under which the M-form is optimal for the merged
firm. |
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