Preliminary new research shows that consolidation in Canadian industry is growing

Preliminary new research shows that Canadian industry is becoming increasingly concentrated due to weak antitrust legislation and growing barriers to entry.

The key finding is part of a new working paper by researchers from York University’s Schulich School of Business. The research paper, “Are Industries Becoming More Concentrated? The Canadian Perspective,” was recently posted on Social Science Research Network, an international online platform that serves as a database for early scholarly research. The study is co-authored by Yelena Larkin, assistant professor of finance at Schulich, and Schulich PhD student Ray Bawania.

The research paper highlights several key conclusions:

  • Large firms have become more dominant.
  • The volume of M&A (mergers and acquisitions) deals has also increased, particularly between companies operating in the same industry.
  • The number of publicly traded firms on the Toronto Stock Exchange – especially non-financial companies – has dropped over the past decade.
  • Companies in industries with the largest levels of concentration are generating higher profit margins.
Yelena Larkin

Yelena Larkin

“The Canadian economy has been affected by two crucial factors that have led to product market consolidation: the first is weak antitrust legislation and practices; the second is increasing barriers to entry, potentially related to changing technology,” said Larkin. “We find that large firms have grown bigger and become more dominant, and there has also been, at the same, a steep decline in the number of public firms, the largest players in the economy, also pointing to a consolidation.”

The result, said Larkin, is that consolidation has led to increased profit margins and market share for bigger companies with less competition. Specifically, the return on assets of Canadian firms has significantly increased in the past two decades in industries where there has been increased consolidation. “Fewer regulatory barriers could incentivize firms to engage in M&A activity and have allowed for mergers with more market power potential,” said Larkin.

To view the research findings, go to: papers.ssrn.com/sol3/papers.cfm?abstract_id=3357041.

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