Journal of the Korean Operations Research and Management Science Society (한국경영과학회지)

The Korean Operations Research and Management Science Society (한국경영과학회)
권호 표지
DOI QR코드

DOI QR Code

Efficiency Effects of Mergers in the Korean Pharmaceutical Industry

국내 제약산업의 합병효과 분석

  • Lee, Cheolhaeng (Korea Health Industry Development Institute) ;
  • Cho, Keuntae (Department of Systems Management Engineering, Sungkyunkwan University)
  • 이철행 (한국보건산업진흥원) ;
  • 조근태 (성균관대학교 시스템경영공학과/기술경영전문대학원)
  • Received : 2017.02.08
  • Accepted : 2017.08.11
  • Published : 2017.08.31
Download PDF
⟨ Previous Next ⟩

Abstract

The main objective of this paper is to empirically analyze the efficiency effects of mergers on Korean pharmaceutical firms and suggests managerial or policy implications for managers or policy makers. This study selects non-merging control firms close to the size of merging firms, as well as a set of merging firms, and measures the effects of mergers on efficiency three years before and after the merger using the non-parametric data envelopment analysis (DEA) method. To compare the differences of efficiency means among several groups, Wilcoxon rank sum test or Wilcoxon signed rank test is used. It showed that the long-term effects after the merger appeared partially. Furthermore, it was observed that there was no difference statistically in the efficiency between merging and non-merging firms. Also, there was no difference statistically in the efficiency between the pre- and post-merger periods. In conclusion, there was not any observed synergy effect through group (or affiliated) mergers between affiliates or related mergers for Korean pharmaceutical firms.

Keywords

References

  1. Arvanitis, S. and T. Stucki, "How Swiss small and medium-sized firms assess the performance impact of mergers and acquisitions," Small Business Economics, Vol.42, No.2(2014), pp.339-360. https://doi.org/10.1007/s11187-013-9482-z
  2. Banker, R.D., A. Charnes, and W.W. Cooper, "Some models for estimating technical and scale inefficiencies in Data Envelopment Analysis," Management Science, Vol.30, No.9 (1984), pp.1078-1092. https://doi.org/10.1287/mnsc.30.9.1078
  3. Barney, J.B. and W.S. Hesterly, Strategic management and competitive advantage, 4th ed., Pearson Education Inc., New Jersey, 2008.
  4. Bhuyan, S., "Impact of vertical mergers on industry profitability: An empirical evaluation," Review of Industrial Organization, Vol.20, No.1(2002), pp.61-79. https://doi.org/10.1023/A:1013310929902
  5. Bogetoft, P. and L. Otto, Benchmarking with DEA, SFA and R, Springer, New York, 2010.
  6. Bogetoft, P. and D. Wang, "Estimating the potential gains from mergers," Journal of Productivity Analysis, Vol.23, No.2(2005), pp.145-171. https://doi.org/10.1007/s11123-005-1326-7
  7. Capron, L., "The long-term performance of horizontal acquisitions," Strategic Management Journal, Vol.20, No.11(1999), pp.987- 1018. https://doi.org/10.1002/(SICI)1097-0266(199911)20:11<987::AID-SMJ61>3.0.CO;2-B
  8. Charnes, A., W.W. Cooper, and E. Rhodes, "Measuring the efficiency of decision making units," European Journal of Operational Research, Vol.2, No.6(1978), pp.429-444. https://doi.org/10.1016/0377-2217(78)90138-8
  9. Danzon, P.M., A. Epstein, and S. Nicholson, "Mergers and acquisitions in the pharmaceutical and biotech industries," Managerial and Decision Economics, Vol.28, No.4-5 (2007), pp.307-328. https://doi.org/10.1002/mde.1343
  10. Demirbag, M., C.K. Ng, and E. Tatoglu, "Performance of mergers and acquisitions in the pharmaceutical industry: A comparative perspective," Multinational Business Review, Vol.15, No.2(2007), pp.41-61. https://doi.org/10.1108/1525383X200700007
  11. DePamphilis, D.M., Mergers, acquisitions, and other restructuring activities: An integrated approach to Process, tools, cases, and solutions, 2nd ed., Academic Press, Amsterdam; Boston, 2003.
  12. DePamphilis, D.M., Mergers, acquisitions, and other restructuring activities: An integrated approach to Process, tools, cases, and solutions, 5th ed., Academic Press, Burlington, MA, 2010.
  13. Dickerson, A.P., H.D. Gibson, and E. Tsakalotos, "The impact of acquisition on company performance: Evidence from a large panel of UK firms," Oxford Economic Papers, Vol.49 (1997), pp.344-361. https://doi.org/10.1093/oxfordjournals.oep.a028613
  14. Dutta, S. and V. Jog, "The long-term performance of acquiring firms: A re-examination of an anomaly," Journal of Banking and Finance, Vol.33, No.8(2009), pp.1400- 1412. https://doi.org/10.1016/j.jbankfin.2009.02.004
  15. Fare, R., Fundamentals of production theory, Springer Verlag, Heidelberg, 1988.
  16. Fare, R., S. Grosskopf, and C.A.K. Lovell, Production frontiers, Cambridge University Press, New York, 1994.
  17. Fee, C.E. and S. Thomas, "Sources of gains in horizontal mergers: evidence from customer, supplier, and rival firms," Journal of Financial Economics, Vol.74, No.3(2004), pp. 423-460. https://doi.org/10.1016/j.jfineco.2003.10.002
  18. Ferrier, G.D. and V.G. Valdmanis, "Do mergers improve hospital productivity?," Journal of the Operational Research Society, Vol.55, No.10(2004), pp.1071-1080. https://doi.org/10.1057/palgrave.jors.2601738
  19. Gaughan, P.A., Mergers, acquisitions, and corporate restructuring, 4th ed., John Wiley & Sons Inc., New York, 2007.
  20. Gonzalez, E. and F. Gascon, "Sources of productivity growth in the Spanish pharmaceutical industry (1994-2000)," Research Policy, Vol.33, No.5(2004), pp.735-745. https://doi.org/10.1016/j.respol.2003.12.004
  21. Grabowski, H. and M. Kyle, "Mergers and alliances in pharmaceuticals: effects on innovation and R&D productivity," In K. Gugler and B.B. Yurtoglu, (Eds.), The economics of corporate governance and mergers, Edward Elgar Publishing, Cheltenham, UK, 2008.
  22. Hassan, M., D.K. Patro, and H. Tuckman, "Do mergers and acquisitions create share-holder wealth in the pharmaceutical industry?," International Journal of Pharmaceutical and Healthcare Marketing, Vol.1, No.1(2007), pp.58-78. https://doi.org/10.1108/17506120710740289
  23. Jayaraman, A.R., M.R. Srinivasan, and R. Arunachalam, "Impact of merger and acquisition on the efficiency of Indian banks: a pre-post analysis using data envelopment analysis," Int. J. Financial Services Management, Vol.7, No.1(2014), pp.1-18. https://doi.org/10.1504/IJFSM.2014.062287
  24. Jung, S.-M. and H.-J. Yoo, "An analysis on the efficiency and productivity of the domestic pharmaceutical companies," Productivity Review, Vol.25, No.4(2011), pp.239- 265. https://doi.org/10.15843/kpapr.25.4.201112.239
  25. KHIDI, Pharmaceutical industry analysis report 2015, 2015.
  26. Kim, J., H. Kim, B. Leem, and J. Yoon, "Analyzing the National Medical Service Efficiency of OECD Countries Using DEA and Malmquist Productivity Index," Journal of the Korean Operations Research and Management Science Society, Vol.37, No.4(2012), pp.125-138. https://doi.org/10.7737/JKORMS.2012.37.4.125
  27. Kumar, M.S., Growth, acquisition and investment: An analysis of the growth of industrial firms and their overseas activities, Cambridge University Press, Cambridge, 1984.
  28. Kumar, S. and L.K. Bansal, "The impact of mergers and acquisitions on corporate performance in India," Management Decision, Vol.46, No.10(2008), pp.1531-1543. https://doi.org/10.1108/00251740810920029
  29. Kwoka, J. and M. Pollitt, "Do mergers improve efficiency? Evidence from restructuring the US electric power sector," International Journal of Industrial Organization, Vol.28, No.6(2010), pp.645-656. https://doi.org/10.1016/j.ijindorg.2010.03.001
  30. Lee, C. and K. Cho, "Proposing a portfolio model for performance management of Korea's Health Technology R&D Programme using DEA and MPI: A translational research case," Asian Journal of Technology Innovation, Vol.23, No.1(2015), pp.20-34. https://doi.org/10.1080/19761597.2015.1008197
  31. Lo, S.-F. and W.-M. Lu, "Does size matter? Finding the profitability and marketability benchmark of financial holding companies," Asia-Pacific Journal of Operational Research, Vol.23, No.2(2006), pp.229-246. https://doi.org/10.1142/S0217595906000930
  32. Ma, Y.-F. and Y.-J. Goo, "Technical efficiency and productivity change in China's highand new-technology industry development zones," Asian Business and Management, Vol.4, No.3(2005), pp.331-355. https://doi.org/10.1057/palgrave.abm.9200135
  33. Mahadevan, R., "A DEA approach to understanding the productivity growth of Malaysia's manufacturing industries," Asia Pacific Journal of Management, Vol.19, No.4 (2002), pp.587-600. https://doi.org/10.1023/A:1020577811369
  34. Mishra, P. and T. Chandra, "Mergers, acquisitions and firms' performance: Experience of Indian pharmaceutical industry," Eurasian Journal of Business and Economics, Vol.3, No.5(2010), pp.111-126.
  35. Moon, H. and D. Min, "The Energy-efficiency Analysis of Companies in Korea Using DEA," Korean Management Science Review, Vol.32, No.3(2015), pp.37-54. https://doi.org/10.7737/KMSR.2015.32.3.037
  36. Oh, S.J., H.J. Kim, and S.W. Kim, "Analysis of the SCQM Efficiency of a Parent Company and Its Partner Companies Using DEA," Korean Management Science Review, Vol. 30, No.2(2013), pp.43-61. https://doi.org/10.7737/KMSR.2013.30.2.043
  37. Oler, D.K., J.S. Harrison, and M.R. Allen, "The danger of misinterpreting short window event study findings in strategic management research: an empirical illustration using hori-zontal acquisitions," Strategic Organization, Vol.6, No.2(2008), pp.151-184. https://doi.org/10.1177/1476127008090008
  38. Park, K. and S. Jang, "Mergers and acquisitions and firm growth: Investigating restaurant firms," International Journal of Hospitality Management, Vol.30, No.1(2011), pp.141-149. https://doi.org/10.1016/j.ijhm.2010.04.002
  39. Ramaswamy, K., "The performance impact of strategic similarity in horizontal mergers: Evidence from the U.S. banking industry," Academy of Management Journal, Vol.40, No.3(1997), pp.697-715. https://doi.org/10.2307/257059
  40. Rani, N., S.S. Yadav, and P.K. Jain, "Impact of mergers and acquisitions on shareholders' wealth in short-run: An empirical study of Indian pharmaceutical industry," International Journal of Global Business and Competitiveness, Vol.6, No.1(2011), pp.40-52.
  41. Rhoades, S.A., "Efficiency effects of horizontal (in-market) bank mergers," Journal of Banking and Finance, Vol.17, No.2-3(1993), pp.411-422. https://doi.org/10.1016/0378-4266(93)90041-B
  42. Sami, S., "Mergers and acquisitions in India's pharmaceutical sector," Transnational Corporations Review, Vol.6, No.1(2014), pp.86-100. https://doi.org/10.1080/19186444.2014.11658383
  43. Saranga, H. and B.V. Phani, "Determinants of operational efficiencies in the Indian pharmaceutical industry," International Transactions in Operational Research, Vol.16, No.1 (2009), pp.109-130. https://doi.org/10.1111/j.1475-3995.2009.00668.x
  44. Shephard, R.W., Theory of cost and production functions, Princeton University Press, Princeton, 1970.
  45. Singh, H. and C.A. Montgomery, "Corporate acquisitions strategies and economic performance," Strategic Management Journal, Vol.8, No.4(1987), pp.377-386. https://doi.org/10.1002/smj.4250080407
  46. Skrepnek, G.H. and K.A. Lawson, "The effect of merger and acquisition activity on shareholder returns in the pharmaceutical industry," Journal of Research in Pharmaceutical Economics, Vol.11, No.1(2001), pp. 19-38. https://doi.org/10.1300/J063v11n01_02
  47. Sung, N. and M. Gort, "Mergers, capital gains, and productivity: Evidence from U.S. telecommunications mergers," Contemporary Economic Policy, Vol.24, No.3(2006), pp.382-394. https://doi.org/10.1093/cep/byj032
  48. Trautwein, F., "Merger motives and merger prescriptions," Strategic Management Journal, Vol.11, No.4(1990), pp.283-295. https://doi.org/10.1002/smj.4250110404
  49. Yeh, T. and Y. Hoshino, "Productivity and operating performance of Japanese merging firms: Keiretsu-related and independent mergers," Japan and the World Economy, Vol.14, No.3(2002), pp.347-366. https://doi.org/10.1016/S0922-1425(01)00081-0
  50. Yoon, S., Role of M&A for the growth of pharmaceutical firms, LGERI, 2009.
  51. You, T., X. Chen, and M.E. Holder, "Efficiency and its determinants in pharmaceutical industries: ownership, R&D and scale economy," Applied Economics, Vol.42, No.17 (2010), pp.2217-2241. https://doi.org/10.1080/00036840701765445
  52. Zollo, M. and D. Meier, "What Is M&A performance?," Academy of Management Perspectives, Vol.22, No.3(2008), pp.55-77. https://doi.org/10.5465/AMP.2008.34587995