Further Evidence on the Usefulness of Simulated Mergers

In a recent study, Silhan (1983) presented some evidence suggesting that the empirical results obtained with simulated mergers are representative of results obtained from actual mergers. Silhan's results seem to confirm at least partially the results of Kinney (1971) and Collins (1976), which were based on reported annual data. Silhan's focus was on quarterly reporting. An attempt is made to use annual data to provide further evidence to confirm the simulated merger results. This evidence comes from a comparison of the forecasting results of Kinney and Collins to the forecasting results of the current analysis, which applied the same Kinney-Collins models on data taken from simulated mergers. Some 48 single-product firms were combined into groups of 2, 3, 4, and 5, with each company reporting annual sales and earnings for every year for the period 1960-1978. Overall, the empirical results of the replication are the same as those of Kinney and Collins. In addition, new evidence is provided that implies that segment ambiguities, intersegment transfers, and common cost allocations may not, in general, account for the inability of annual segmented margins to outperform consolidated margins.