Published Papers

“Anticompetitive Effects of Horizontal Acquisitions: The Impact of Within-Industry Product Similarity"

Fathollahi, M., Harford, J. and Klasa, S., 2022. Anticompetitive effects of horizontal acquisitions: The impact of within-industry product similarity. Journal of Financial Economics, 144(2), pp.645-669.

Download IPS data (Industry Product Similarity)

Abstract

Theory predicts that horizontal acquisitions can effectively increase incumbent firms’ market power in concentrated industries with high product similarity. Using a novel measure for industry product similarity, we show that in such industries firms’ propensity to make horizontal acquisitions is greater and that the acquisitions result in more positive announcement returns for the acquirer and rival firms and in a larger premium paid for the target. Also, the deals harm dependent customer and supplier firms and they are more likely to be challenged by antitrust authorities. Overall, by emphasizing the importance of product similarity, our results help explain mixed empirical findings on whether horizontal acquisitions are used to reduce competition intensity.

Keywords: Horizontal acquisitions; Product similarity; Product market competition; Industry concentration:

JEL Classifications: G34; L11; L22; L41

Selected Working Papers

“Employee Flight Risk and Capital Structure Decisions” (with Sandy Klasa and Hernán Ortiz-Molina).

Available at SSRN: https://ssrn.com/abstract=3294629. 

Conferences and seminars:

Abstract

We examine how the risk that a firm will suffer productivity losses and incur significant search and training costs when some of its mobile workers leave - employee flight risk - affects its capital structure decisions. We proxy for this risk with the ex-ante cross-industry labor mobility of a firm’s workers using a novel dynamic textual measure for this mobility based on network centrality. Firms facing higher employee flight risk maintain lower debt ratios, hold more cash, and pay less dividends. This effect is stronger for firms with limited access to external capital, that are in labor-intensive industries, or with a larger number of workers who are skilled, in managerial occupations, or who have lower switching costs. Conversely, the effect is weaker for firms in strongly performing industries and subsequent to an exogenous increase in the supply of workers. Our evidence implies that employee flight risk, which is especially acute during financial distress, leads to more conservative financial choices because it increases a firm’s expected costs of financial distress.

Keywords: Capital structure, labor mobility, skilled workers, exogenous shock, textual analysis, network analysis

JEL Classification: G31, G32, G35, J24, J61, J62