Product market competition, type of mergers, and post-merger performance in Taiwan

This paper investigates the effect of product market competition, along with the interaction effect of market competition and the type of mergers and acquisitions (focused or diversified M&As) on an acquirer's post-merger long-term performance. Literature suggests that market competition has the function of disciplining managers and forcing them to operate efficiently. Our main hypotheses are that market competition has a positive effect on post-merger performance only for focused mergers due to the diversification-discount phenomenon, and that diversified mergers may erode the benefits of competition in post-merger performance. Using merger events for Taiwan's listed firms as a sample, the evidence supports our hypotheses, even when considering the endogeneity of market competition and considering only non-electronics events. The discipline derived from market competition tends to be weak across the whole sample. The robustness check confirms the limited positive effect of competition caused by finding a negative relation between acquisition premium and competition only for the focused M&As.