Modelling firm mergers as a roommate problem

Arbeitspapier

We propose a way to model firm mergers using a matching game known as the roommate problem, whereby firms are assumed to make preference rankings of potential merger partners. The position of a firm in another firm's ranking is assumed to be governed by an index, which in turn consists of a deterministic part and of a stochastic one, similar to the latent indices used in standard discrete-choice models. Given all firms' preferences, game-theoretic mechanisms lead to a matching whereby each firm is either self-matched or assigned a merger partner. We derive expressions for the probability of a merger between a specific firm pair, and also a log-likelihood function for estimation using firm-specific data. Using a simulation in a setting with groups of three firms involved in roommate games within each group, the model's finite-sample properties are examined.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2006:10

Classification and Topics

• Classification: Wirtschaft ; Statistical Simulation Methods: General ; Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities ; Bargaining Theory; Matching Theory ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: firm mergers ; roommate game ; matching markets ; discrete response ; Fusion ; Marktmechanismus ; Spieltheorie ; Matching ; Diskrete Entscheidung

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Angelov, Nikolay
• Event: Veröffentlichung
• (who): Uppsala University, Department of Economics
• (where): Uppsala
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/82658
• URN: urn:nbn:se:uu:diva-83077
• Last update: 10.03.2025, 11:42 AM CET