Abstract:
This paper answers an empirical question of how the effects of mergers and acquisitions (M&As) spill over in the firm-level production network. We distinguish the spillover which directly transmit from target firms to peer firms (“direct spillover"), and the effects which affect peer firms through common upstream/ downstream firms with the targets (“rebound effect"). To decompose direct and rebound effects, we use a mediation analysis method together with instrument variable. We find that the overall spillover is positive, and the magnitude increases with the intensity of their linkage. More importantly, decomposition result suggests that the majority of the spillover effects are carried by rebound effects instead of direct effects. This result has two implications. First, lack of knowledge about the production linkage between firms and their peers lead to perplexity of understanding spillover. Second, it points out that rebound transmission is the major way of propagation for M&As.
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