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.
Industry Merger Intensity and Cost of Capital†
Article first published online: 13 JUN 2012
© 2012 The Authors. International Review of Finance © International Review of Finance Ltd. 2012
International Review of Finance
Volume 12, Issue 4, pages 469–490, December 2012
How to Cite
Mamun, A. and Mishra, D. (2012), Industry Merger Intensity and Cost of Capital. International Review of Finance, 12: 469–490. doi: 10.1111/j.1468-2443.2012.01157.x
- Issue published online: 5 DEC 2012
- Article first published online: 13 JUN 2012
- Edwards School of Business
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.