This study analyzes the impact of horizontal mergers and acquisitions on performance. It focuses on the size effects resulting from such horizontal M&As, namely in terms of operating efficiency on the one hand and bargaining power on the other hand. These two potential benefits created by horizontal M&As correspond to the main theoretical drivers of the size-profitability relationship put forth in the economics and strategy literatures. The relationship between size and performance is an important issue in strategy—most empirical analyses include size as a control variable, but it is poorly understood theoretically. While there has been considerable recent research on M&As, very rarely has this work focused on the size impact of such a strategic move. We test our hypotheses on a sample of 83 firms in the global retail sector over the 1984-2003 period. After controlling for endogeneity, we find little difference in the overall performance of M&As when compared to organic growth, as per previous research. But more interestingly, we find that, when compared to organic growth, M&As primarily enhance performance by increasing bargaining power; conversely, the effect of M&As on operating efficiency is significantly smaller than that of organic growth. We then examine implications of these results for theory as well as for practice.
