Vertical versus horizontal integration in the biopharma industry

The link between acquisition announcements and stock market performance

Anne S. York, Lee M. Dunham, Mark Ahn

Research output: Chapter in Book/Report/Conference proceedingChapter

4 Citations (Scopus)

Abstract

Declining productivity and disappointing lack of profitability after three decades of biotechnology commercialization, despite enormous investment and the great promise of breakthrough solutions, have led researchers to question whether traditional horizontal acquisition strategies result in superior firm performance. Our chapter explores the answer to this question as well as to the role that disclosure plays in this important emerging industry. Using standard event study methodology, we examine differences in market performance of vertical versus horizontal acquisition strategies, along with the role played by the amount of information disclosed in the announcement. Our results suggest that vertical acquisitions underperform horizontal acquisitions, with the amount of disclosure playing a role in the market's ability to react to a firm's acquisition strategy accurately and quickly. Our results suggest that accountants who have called for additional disclosure, especially in complex industries such as biopharma, are correct in assuming that nonfinancial information plays a significant role in investors' valuation of an acquisition event. Managers of biopharma firms, however, are cautioned that more disclosure, through the reduction of uncertainty, may result in lower market valuations for acquirers.

Original languageEnglish
Title of host publicationAdvances in Mergers and Acquisitions
Pages121-143
Number of pages23
Volume10
DOIs
StatePublished - 2012

Publication series

NameAdvances in Mergers and Acquisitions
Volume10
ISSN (Print)1479361X

Fingerprint

Stock market performance
Announcement
Horizontal integration
Industry
Disclosure
Commercialization
Accountants
Market valuation
Market performance
Non-financial information
Profitability
Investors
Firm performance
Uncertainty
Biotechnology
Productivity
Event study methodology
Managers

All Science Journal Classification (ASJC) codes

  • Business and International Management

Cite this

York, A. S., Dunham, L. M., & Ahn, M. (2012). Vertical versus horizontal integration in the biopharma industry: The link between acquisition announcements and stock market performance. In Advances in Mergers and Acquisitions (Vol. 10, pp. 121-143). (Advances in Mergers and Acquisitions; Vol. 10). https://doi.org/10.1108/S1479-361X(2012)0000010010

Vertical versus horizontal integration in the biopharma industry : The link between acquisition announcements and stock market performance. / York, Anne S.; Dunham, Lee M.; Ahn, Mark.

Advances in Mergers and Acquisitions. Vol. 10 2012. p. 121-143 (Advances in Mergers and Acquisitions; Vol. 10).

Research output: Chapter in Book/Report/Conference proceedingChapter

York, AS, Dunham, LM & Ahn, M 2012, Vertical versus horizontal integration in the biopharma industry: The link between acquisition announcements and stock market performance. in Advances in Mergers and Acquisitions. vol. 10, Advances in Mergers and Acquisitions, vol. 10, pp. 121-143. https://doi.org/10.1108/S1479-361X(2012)0000010010
York, Anne S. ; Dunham, Lee M. ; Ahn, Mark. / Vertical versus horizontal integration in the biopharma industry : The link between acquisition announcements and stock market performance. Advances in Mergers and Acquisitions. Vol. 10 2012. pp. 121-143 (Advances in Mergers and Acquisitions).
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