This paper investigates the reaction of financial markets to the announcement of a business combination between software firms. Based on the theory of economic networks, this article argues that mergers of software firms should lead to greater wealth creation because of the network effect theoretically linked to the combination of software products. This hypothesis is partially supported, as only the targets in software/software outperform those in the other categories, yielding abnormal returns of great magnitude. In addition, we could not conclude that controlling position in the target enabled bidders to make the appropriate technological decisions to ensure the emergence of network effects in the portfolio of the new entity and create additional wealth for the shareholders of both the bidder and the target. Future research is needed to better understand the effect of the different properties of the software pooled inside the product portfolio of the new entity.
Leger, Pierre-Majorique and Yang, Shinkyu, "Network Effects and the Creation of Shareholders' Wealth in the Context of Software Firm Mergers and Acquisitions" (2005). ECIS 2005 Proceedings. 112.