Both authors are from the Yale School of Management. The authors thank Lauren Cohen, Engelbert Dockner, Alex Edmans, William Goetzmann, Alexander Gümbel, Jonathan Ingersoll, Uday Rajan, Raman Uppal, Ivo Welch, and seminar participants at the University of Toronto, UCSD, and the European Winter Finance Summit for their comments.
Dynamic Competition, Valuation, and Merger Activity
Article first published online: 11 JAN 2013
© 2013 The American Finance Association
The Journal of Finance
Volume 68, Issue 1, pages 125–172, February 2013
How to Cite
SPIEGEL, M. and TOOKES, H. (2013), Dynamic Competition, Valuation, and Merger Activity. The Journal of Finance, 68: 125–172. doi: 10.1111/j.1540-6261.2012.01796.x
- Issue published online: 11 JAN 2013
- Article first published online: 11 JAN 2013
- Accepted manuscript online: 27 DEC 2012 05:55AM EST
- Initial submission: September 9, 2010; Final version received: May 2, 2012
We model the interactions between product market competition and investment valuation within a dynamic oligopoly. To our knowledge, the model is the first continuous-time corporate finance model in a multiple firm setting with heterogeneous products. The model is tractable and amenable to estimation. We use it to relate current industry characteristics with firm value and financial decisions. Unlike most corporate finance models, it produces predictions regarding parameter magnitudes as well their signs. Estimates of the model's parameters indicate strong linkages between model-implied and actual values. The paper uses the estimated parameters to predict rivals’ returns near merger announcements.