The Effect of Mergers and Acquisitions on Efficiency: Evidence from the Pharmaceutical Industry

This study emphasizes the assessment of efficiency and the degree of operating efficiency of mergers and acquisitions in the pharmaceutical industry worldwide. This industry encounters various challenges such as expiring patents, the rise of genetics pharmaceuticals, the entrance of biotechnology companies in the pharmaceutical market, the increasing research and development expenses, government regulations of the pharmaceutical industry, distribution channels, and drug prices. All these challenges result in an intensely competitive environment in which pharmaceuticals suffering from shortcomings (e.g., operational and/or financial inefficiencies) are not easy to catch up with the competition. Mergers and acquisitions are major activities to overcome shortcomings and achieve growth. Mergers and acquisitions have been widely used in the pharmaceutical industry for many years and are expected to accelerate. The objective of this work is to identify whether mergers and acquisitions between pharmaceutical companies can be successful and to highlight the most favourable consolidations. The assessment of mergers and acquisitions is realized through conventional and stochastic data envelopment analysis approaches. The empirical analysis draws on a sample of 371 pharmaceutical companies. The original sample was extended by 870 possible combinations between firms. Our empirical analysis reveals a positive impact of mergers and acquisitions on the efficiency of pharmaceutical companies.