1. Kim and Singal (1993) Target shareholder wealth could increase due to value creation wealth transfer (from employees, customers, etc.). In either case, stock-market performance or accounting earnings of the combined firm should show improvement. How do we distinguish whether target shareholder wealth increase is due to value creation or wealth transfer?

2. Kim and Singal (1993) How do we distinguish whether target shareholder wealth increase is due to value creation or wealth transfer (from customers)? P Q Marginal Cost Demand Marginal Revenue Monopoly Price Competitive price

3. Kim and Singal (1993) Page 555: An increase in price (airfare) implies that the market- power effect dominates efficiency gains; a decrease in price implies the dominance of efficiency gains. Page 556: Fare changes during the announcement period (Table 1) are primarily due to the market-power effect, whereas the fare changes during the completion period reflect the joint, and offsetting, effects of market power and efficiency gains.

4. Kim and Singal (1993) Summary of Main Findings (Page 567): Routes affected by mergers show significant increases in airfares relative to control group. Price increases positively correlated with changes in concentration. Price increases positively correlated with distance of routes (airlines exploit greater market power on longer routes for which substitution by other modes of transport is less likely). For normal firms: Effect of increased market power takes place during merger discussions. In mergers with common hubs and overlapping service, efficiency gains kick in after merger completion. When target firm is in financial distress: Airfare reduction during merger discussion, but drastic fare increase after merger completion. When merging firms have neither common hubs or overlapping service: Efficiency gains unlikely. Exercise of market power during discussion and after completion of merger: “Multimarket contact”

5. Akhavein-Berger-Humphrey (1997): Bank Mergers Summary of Main Findings (p. 132): No improvement in cost efficiency of merging banks. Improvement in profit efficiency of merging banks due to shift in outputs from securities to loans. Shift in product mix may occur because merging banks have improved diversification of risks (from loans) that allow a higher loan/asset ratio - without an increase in the equity/asset ratio. Capital markets restrict banks from taking substantial additional risks without increases in equity. Improvement in efficiency after the merger is higher if either or both of the merging firms have low efficiency prior to merger. The merger may have the effect of “waking up” management or be used as an excuse to implement substantial restructuring and efficiency improvements to increase the profitability of both parts of the combined institution.

6. Akhavein-Berger-Humphrey (1997): Bank Mergers Summary of Main Findings (continued) (p. 132): Market power effects of megamergers in banking are very small. On average, both loan and deposit prices fall by statistically insignificant less than 7 basis points. Changes in local market concentration from megamergers quite small on average even for mergers between banks with substantial market overlap prior to merger. Above findings suggest that public policy (DOJ and FTC) may have been successful in preventing mergers that would bring about large increases in concentration or market power. Has this policy also prevented mergers that might have increased efficiency substantially? Berger et al (1999) page 154-155: Above study did not focus on mergers involving substantial increases in local market concentration. Bank mergers that involve increases in market concentration severe enough to violate the DOJ bank merger guidelines substantially reduced deposit rates paid by the merger participants, consistent with market power effects. Bank mergers that do not involve significant increase in concentration had no significant effect on deposit rates.

7. Akhavein-Berger-Humphrey (1997): Bank Mergers Caveats (p. 135) Study may not generalize to mergers other than banking megamergers of the 1980s. Greater cost efficiency in other industries? Greater cost efficiency in bank mergers in 1990s because of increased emphasis on cost cutting? More market power effects in mergers of smaller banks which tend to occur in more concentrated local markets?