Inefficient mergers

Yelena Larkin, Evgeny Lyandres

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)


Although complementarity between products and/or technologies of bidders and targets is considered a key driver of M&A deals, many observed mergers are inefficient: Complementarity gains in actual mergers are lower than the gains that could have been obtained were the targets acquired by different bidders. In this paper we propose a possible reason for the existence of inefficient mergers, which is based on search and information frictions. Our model examines three such frictions: target's obsolescence risk, difficulties in evaluating complementarity gains, and competitive interaction among potential bidders in output markets. We test the model's predictions using two established measures of complementarity gains in mergers: product similarity and technological overlap. Both sets of tests indicate that the degree of inefficiency in observed M&As is related to targets’ and bidders’ characteristics in ways consistent with the model's predictions. More generally, our results suggest that search and value discovery are important determinants of merger outcomes.

Original languageEnglish
Article number105648
Number of pages31
JournalJournal of Banking and Finance
Publication statusPublished - Nov 2019
Externally publishedYes


  • Complementarities
  • M&As
  • Product similarity
  • Technological overlap

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