Deregulation, Competition and Merger Activity in the U.S. Telecommunications Industry

53 Pages Posted: 1 May 2012 Last revised: 22 Jun 2015

See all articles by Kevin Okoeguale

Kevin Okoeguale

Saint Mary's College of California

Date Written: June 30, 2015

Abstract

Using the 1996 Telecommunications Act as a natural experiment, I examine the role of competition in “how” economic shocks drive industry-level clustering of merger activity and “who buys whom?” In the telecom industry, deregulation opened both the local and long-distance markets to competition from new communication technologies, driving significant increases in IPO and merger activity. My findings support the view that the increase in merger activity following the 1996 deregulation was an efficiency-improving restructuring response to increased competition from deregulation and technological change, and not to increased misvaluation. The economic shocks from deregulation and technological change drive merger activity by increasing industry competition. I find no significant relationship between the level of merger activity and stock market misvaluation. I find evidence systematically relating telecom firms’ performance and merger characteristics; pre-1996 deregulation levels of efficiency and leverage show up as important determinants of an incumbents’ survival and/or merger fate; the more efficient and less leveraged incumbents are more likely to be the acquirers than the targets in mergers involving two incumbents.

Keywords: Mergers, Deregulation, Technological Change, Competition, Restructuring, Efficiency, Misvaluation

JEL Classification: G34, G38

Suggested Citation

Okoeguale, Kevin, Deregulation, Competition and Merger Activity in the U.S. Telecommunications Industry (June 30, 2015). 26th Australasian Finance and Banking Conference 2013, Available at SSRN: https://ssrn.com/abstract=2049491 or http://dx.doi.org/10.2139/ssrn.2049491

Kevin Okoeguale (Contact Author)

Saint Mary's College of California ( email )

P.O. Box 4240
Moraga, CA 94575-4240
United States

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