The Ripple Effect Of Vertical Mergers And Acquisitions Between Upstream And Downstream Industry

Under the condition of modern market economy, capital market mergers and acquisitions are gained more and more attention by enterprises. Weston (1998) pointed out that enterprise merger and acquisition has become a very prominent phenomenon in modern economic history, and increasingly become an economic activity which be regarded as being in the same category with financial, trade and investment. M&A problem has also become a hot research object of domestic and foreign and scholars. However, in the field of academic, compare to the more and more mature research on horizontal merger and acquisition, there is little research specifically relates to vertical mergers and acquisitions. And most of them follow the classic model of "Vertical Merger and Acquisition-Corporate Performance".Under these circumstances, we choose the relationship between the upstream and downstream as a starting point, and choose China corporate mergers and acquisitions data between 2007 and 2012 as research sample, combined with input and output data between different industries, to investigate whether cross industry vertical merger and acquisition is influenced by the industrial chain transmission and its transmission path, expect to find a meaningful conclusion to guide the government to formulate the policy of industrial restructuring. It is found that the vertical M&A behavior between the upper and lower reaches of the industry will trigger a ripple effect in the industry chain. The main conclusions are as follows:(1) The vertical M&A behavior between the upstream and downstream industries has a significant positive effect on vertical merger and acquisition of the intermediate industry. (2) The stronger the industry association degree is, more remarkably the positive effect. (3) If the upstream and downstream industries or intermediate industries belong to the resource based industries, the positive effect on vertical merger and acquisition of the intermediate industry is weaker.In this paper, the research on vertical M&A is conducted from the perspective of the relationship of different industries, add the industry association strength and the industrial resources characteristic as the adjustment variable, this provides a new angle of view for the vertical merger and acquisition research. Besides, we not only focus on a static vertical M&A behavior, but a dynamic behavior which may lead ripple effect in industry chain, breaking the traditional research frame of "two enterprises". It makes a useful supplement to the research of dynamic competition strategy of the enterprises in the industry network. The conclusion of this paper is helpful for enterprises to understand the possible chain reaction of M&A behavior in the industry chain, so as to make a reasonable judgment, and to make sure the positive economic effect of M&A behavior. The verification of the ripple effect of vertical M&A behavior in the industry has provided a useful reference for the government to formulate relevant policies to promote industrial resources integration and cross industry mergers and acquisitions.