Are Investors for Sale? Evidence from Financial Mergers

Authors: Luo, M., Manconi, A., and Schumacher, D.

Abstract:
We study consolidation in the global asset management industry. The merging companies benefit from the merger via two channels: access to new markets and to new investment expertise. While the performance of acquiror-affiliated funds deteriorates during the merger process (mainly driven by declining returns in the acquiror’s main areas of expertise), the target funds’ performance improves. Following the deal, acquiror and target companies shift the relative intensity of new fund launches towards new distribution markets, generating higher flows in new funds launched there. In addition, both acquiror- and target-affiliated funds converge in their portfolio compositions after gaining a common affiliation. Specifically, acquiror (target) funds begin investing in areas where the target (acquiror) used to invest prior to the merger, and generate outperformance in those newly-entered investments. Our results indicate that mergers allow acquirors to address their deteriorating performance because they allow acquirors to capture new flows both directly (via target distribution channels) and indirectly (via learning about new investment areas).

Read full article: SSRN, August 2, 2015