![Text Box: Research:
Dissertation:
Empirical Models for Analyzing Target Choice and Deal Outcome in Mergers and Acquisitions
Essay 1: “Measuring the Impact of Mergers on Innovation with a Roommate Matching Model”
The effect of merger and acquisition (M&A) on firm performance has been a topic of interest in many fields. In marketing, the focus is particularly on innovation potential (e.g. Sorescu et al, 2007). Most of the research in this area directly links the merger outcome to the acquirer, target or deal characteristics, without controlling for the endogenous matching between the acquirer and the target. Ignoring the matching process in the analysis of merger outcome has two effects. First, these studies cannot distinguish which variables generate merger synergies and which influence the integration process, thus obscuring the effect of integration process on merger performance. Second, these studies may yield biased estimates of the determinants of merger outcome if unobserved variables affect both matching and outcome of a merger.
To overcome these problems, I develop and estimate a structural model that jointly specifies merger matching and merger outcome. The structural model comprises a roommate matching model to explain the sorting of firms into merging pairs, and an outcome function is linked to the matching model through error correlation. By jointly specifying merger matching and merger outcome, this paper pioneers the technique for quantifying and estimating the empirical determinants of merger integration process. The matching model also introduces an exogenous source of variation which helps correct the estimation bias from endogenous matching. This method for correcting matching induced bias in estimation is novel in a merger setting. Due to the existence of high dimensional integrals in the likelihood function, the model is estimated using Bayesian estimation with Markov Chain Monte Carlo (MCMC) simulation. The efficacy of the model in recovering parameters is demonstrated using simulation.
The model is applied to 2,247 M&A deals in five high-tech industries between 1991 and 2008 to obtain unbiased estimates of the determinants of post-merger sales growth. Additional results will be obtained on the drivers of innovation output in a merger. This method can be adapted to many marketing situations which involve matching and performance evaluation, such as the selection and evaluation of wholesale distributors, suppliers, advertising agencies etc.
Essay 2: Yu Yu, Vithala Rao, “Promoting Growth and Innovation through Acquisition: A Choice Modeling Approach,” revise and resubmit at Journal of Marketing Research [Download from SSRN]
While innovation and growth can be promoted internally through focus on research and development (R&D), many firms find acquisition from external sources to be a fast and attractive alternative. Despite the numerous theories of merger and acquisition in the literature, no empirical study has tackled the problem of target selection in an acquisition. This paper is the first to study the target selection criteria in an empirical setting. It quantifies the elusive concept of synergy by developing novel measures of similarity and complementarily between the acquirer and the target that are more comprehensive than the existing measures in the literature. Using an innovative application of the discrete choice model, the authors find that firms use acquisition to promote growth and innovation in areas of strategic interest. Specifically, acquirers choose targets whose product markets match their own R&D projects, and targets whose R&D projects match their own product markets. These findings provide support for the knowledge based view of the firm and lay the foundation for future research in this area.
Essay 3: “Theoretical Review and Empirical Research Perspective on Mergers and Acquisitions”
Merger and acquisition (M&A) is a topic that attracts wide attention from fields such as economics, finance, organizational behavior and law. The schools of thought in M&A research can be classified into strategy theories; process theories; financial theories; governance theories, and competence related theories. This essay provides a review of the literature on these M&A theories and their implications for empirical research. Future research directions based on these ideas are also discussed.
Other Research:
Yu Yu, Sachin Gupta, “Pioneering Advantage in Generic Drug Competition”
revise and resubmit at Journal of Marketing [Download from SSRN]
Pharmaceutical markets experience the entry of numerous generic firms upon expiration of the brand firm’s patent. In this paper, we take a close look at competition among the generic entrants during the first three years after patent expiration and examine whether there is a first mover advantage. We specify a random effect nested logit model of competition that allows for competition between the brand drug and generics, and among multiple generic drugs. The model accommodates the effects of prices, detailing, sampling, journal advertising, time-in-market, and molecule-specific characteristics. The model is estimated on cross-section time-series data for 49 molecules in which the brand drug lost patent exclusivity between 1992 and 2000. We find strong evidence that the early generic entrant enjoys a substantial market share and profit advantage over the second and the third entrants, after controlling for differences in marketing activities. We also find evidence suggesting that the advantage is due to the response of the retail pharmacy channel, and due to differential effectiveness of advertising and pricing between earlier versus later entrants.
“Managing the End of Product Life Cycle in a Competitive Environment”, (with Vithala Rao)
This paper measures and analyzes the effect of various strategies adopted by brand pharmaceutical companies when their drugs lose patent protection. It uses Kalman filter to model the drug sales at the end of product life cycle while controlling for competitor’s actions in the market place.
“The Effectiveness of Patient Compliance Programs: An Empirical Investigation”
Most of the research in pharmaceutical marketing focuses on drug promotion, which is not only a costly arms race but can also face resistance from the targets of the promotion. To jointly benefit patients, physicians and themselves, many pharmaceutical companies have adopted programs that aim to improve patients’ compliance to the drug intake and refill schedule of the prescription, and provide personal support to patients regarding the drug and its usage. This paper studies the effectiveness of such programs using a duration model and analyzes the factors that influence the duration of stay and the usage of drugs by the patients enrolled in such programs.](default_files/image374.gif)
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Research Interest: · Marketing Modeling · Econometrics · Innovation · Merger and Acquisition · Pharmaceutical Industry
References:
· Vithala R. Rao (advisor)
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Education:
· Johnson School of Management, Cornell University Ph.D. in Marketing Expected in May 2010 M.S. in Marketing 2008 · Department of Economics, Indiana University, Bloomington M.A. in Economics 2004 · Nankai University, China B.A. in Finance 2002
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Contact:
Address: 201 Sage Hall Johnson School of Management Cornell University Ithaca, NY, 14853 Email: yy235@cornell.edu Phone: 862-596-1551
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Selected Coursework:
Marketing: Doc. Seminar in Quant Marketing Models Doctoral Pro-seminar in Marketing Ph.D. Seminar in Quantitative Marketing Workshop on Bayesian Methods
Economics Health Economics Psychology and Economic Theory Industrial Organization-Empirical Industrial Organization-Theoretical Game Theory Microeconomics II Microeconomics I
Econometrics Time Series Applied Econometrics II Applied Econometrics I Econometrics: Panel Data and Cross Section Econometrics: Nonlinear and Simultaneous Models Econometrics: Regressions and Time Series Econometrics : Statistic Foundations
Statistics and Mathematics Analysis of Longitudinal Data Bayesian Statistics and Data Analysis Introduction to Stochastic Processes I Simulation Modeling and Analysis Introduction to Analysis
Teaching, Language and Communication Teaching Undergraduate Economics Oral Communication Advanced Expository Writing, English
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Vithala R. Rao Various Faculty Sachin Gupta Greg Allenby
John Cawley Ted O’Donoghue Nancy Epling Eric Rasmusen Roy Gardner Roy Gardner Fwu-Rang Chang
Tim Mount George Jackubson George Jackubson Tong Li Tong Li Pravin Trivedi Konstantin Tyurin
Anand Vidyashankar David Ruppert Haya Kaspi Heseyin Topaloglu Shouhong Wang
William Becker Charlotte Rosen Sylvia Pamboukian
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