The Importance of Industry Links in Merger Waves
Kenneth R. Ahern
University of Southern California - Marshall School of Business
University of Washington
December 19, 2012
Journal of Finance, Forthcoming
We represent the economy as a network of industries connected through customer and supplier trade flows. Using this network topology, we find that stronger product market connections lead to a greater incidence of cross-industry mergers. Second, mergers propagate in waves across the network through customer-supplier links. Merger activity transmits to close industries quickly and to distant industries with a delay. Finally, economy-wide merger waves are driven by merger activity in industries that are centrally located in the product market network. Overall, we show that the network of real economic transactions helps to explain the formation and propagation of merger waves.
Number of Pages in PDF File: 159
Keywords: Mergers & Acquisitions, Product Markets, Networks
JEL Classification: G34, L22
Date posted: December 14, 2009 ; Last revised: December 21, 2012
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