Review of Finance Vol. 16 No. 2 2012
A Theory of Strategic Mergers
Abstract
We examine firms’ strategic incentives to engage in horizontal mergers. In a real options framework, we show that strategic considerations may explain abnormally high takeover activity during periods of positive and negative demand shocks. Importantly, this pattern emerges solely as a result of firms’ strategic interaction in output markets. We show that the U-shaped relation between the state of demand and the propensity of firms to merge, documented in past studies, is driven by horizontal mergers in industries that are: (1) relatively more concentrated, (2) characterized by relatively strong competitive interaction among firms, and (3) characterized by relatively low merger-related operating synergies and restructuring costs. The empirical evidence, based on parametric and semi-parametric regression analyses, is consistent with these predictions.
- DOI
- 10.1093/rof/rfr013
- Volume
- 16
- Issue
- 2
- Pages
- 517-575
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref