Industry Merger Intensity and Cost of Capital


  • We acknowledge the financial support from the Center of Strategic Financial Management at Edwards School of Business. We thank seminar participants at the Asian Finance Association Annual Meeting in Hong Kong, 2010. We also thank Craig Wilson, Sudipto Dasgupta, and an anonymous referee.

Abdullah Mamun

Edwards School of Business

University of Saskatchewan

25 Campus Drive

Saskatoon, SK S7N 5A7



Using a panel of industry-average implied cost of equity capital and the value of prior year aggregate industry mergers, we find strong evidence that the industry cost of equity capital is negatively associated with industry merger activity. Our evidence is consistent with greater media coverage, analyst following, or increase in investor attention associated with industry merger activity lowering the required return on equity for firms in an industry that is not involved in merger activity via the ‘information risk’ or ‘incomplete information’ channels.