Abstract
We hypothesize that the more central a firm in the customer–supplier network the lower is its returns from an acquisition. We find that the acquirers’ announcement day abnormal returns decline if the acquirer is more central in the network. Additionally, the target’s premiums decline if the target is more central in the network. Lastly, we also find that conditioned on the acquirer’s centrality, the acquirer’s announcement day abnormal returns increase if more information is available about the target. The centrality of the firm represents information availability of the firm. Thus, information availability may lead to a decline in acquisition returns.
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The data can be freely downloaded from: http://www.bea.gov/industry/io_benchmark.htm.
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Appendix
Appendix
Centrality Measures (Definitions are based on network theory).
Degree Defined as the number of industries the nodal industry has supplier or customer relationships.
Eigenvector Each node in the industry network is assigned eigen values. Is the sum of the eigenvalues of the connections of the industry.
Closeness The farness of an industry is the sum of the shortest distance between the industry and all other connected industries. The inverse of farness is closeness. Cannot be calculated as a weighted centrality measure.
Betweenness Is the number of times the industry acts as the shortest path between two other industries. Cannot be calculated as a weighted centrality measure.
Degree Weighted Defined as the number of industries the nodal industry has supplier or customer relationships. Additionally, the number of ties is weighted by the total dollar flow between the two industries.
Eigenvector Each node in the industry network is assigned eigen values. Is the sum of the eigenvalues of the connections of the industry. Additionally, the number of ties is weighted by the total dollar flow between the two industries.
In-degree Is the fraction of the number of industries supplying to the nodal industry.
Out-degree Is the fraction of industries that are customers of the nodal industry.
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Baxamusa, M., Javaid, S. & Harery, K. Network centrality and mergers. Rev Quant Finan Acc 44, 393–423 (2015). https://doi.org/10.1007/s11156-013-0411-7
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DOI: https://doi.org/10.1007/s11156-013-0411-7