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| Author: | Garfinkel, J. a. Hankins, K. W. |
| Title: | The role of risk management in mergers and merger waves |
| Journal: | Journal of Financial Economics
2011 : SEP, VOL.101:3, p. 515-532 |
| Index terms: | vertical integration companies risk management cash flow models mergers |
| Freeterms: | waves |
| Language: | eng |
| Abstract: | This article analyzes and expounds that merger activity and particularly waves are significantly driven by risk management considerations. Increases in cash flow uncertainty encourage firms to vertically integrate and this contributes to the start of merger waves. Their risk management hypothesis is further supported by cross-sectional differences in the likelihood that a firm vertically integrates, and by the post-acquisition characteristics of vertically integrating firms. These results are consistent with the view that vertical integration is an operational hedging mechanism that reduces the cost of increased uncertainty. |
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