Antitrust deregulation and long-term performance of acquiring firms

This study analyzes the impact of antitrust deregulation in 2007 on the long-term performance of acquiring firms using data from 1,185 completed mergers and acquisitions (M&A) in Korea from 1999 to 2017. We measure performance using a 12-month buy-and-hold cumulative abnormal average return estimated with the difference-in-differences model. We find that, on average, shareholder returns on horizontal acquisitions are significantly higher. However, no evidence indicates whether increased market power or improved cost efficiency drives this relationship. For M&A in chaebol firms, firm value decreases significantly after a merger. Based on this finding, we argue that the overall decline in chaebol firm value stems from M&A mainly pursued for tunneling purposes. The subsample analyses demonstrate that managerial entrenchment problems cause a decline in the value of chaebol firms. However, no evidence supports the market power and cost efficiency hypotheses regarding non-chaebol firms.