Merger clusters during economic booms

Arbeitspapier

Merger activity is intense during economic booms and subdued during recessions. This paper provides a non-financial explanation for this observable pattern. We construct a model in which the target—by setting the takeover price—screens the acquirer on his (expected) ability to realize synergy gains when merging. In an economic boom, it is less profitable to sort out relatively “bad fit” acquirers, leading to a hike in merger activity. Although positive economic shocks produce expected gains at the time of merging, these mergers turn out to be less efficient in the long term—a finding that is broadly consistent with the existing empirical evidence. Furthermore, again because of the absence of boom-time screening, the more efficient acquirers earn higher merger profits during “merger waves” than outside of waves, which is also in line with empirical evidence.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WZB Discussion Paper ; No. SP II 2006-17

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Information, Knowledge, and Uncertainty: General ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Mergers ; Merger Waves ; Screening

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Banal-Estañol, Albert ; Heidhues, Paul ; Nitsche, Rainer ; Seldeslachts, Jo
• Event: Veröffentlichung
• (who): Wissenschaftszentrum Berlin für Sozialforschung (WZB)
• (where): Berlin
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/51017
• Last update: 10.03.2025, 11:42 AM CET