Eat or Be Eaten: A Theory of Mergers and Firm Size
Gary B. Gorton
Yale School of Management; National Bureau of Economic Research (NBER)
University of Colorado at Boulder - Leeds School of Business
Richard J. Rosen
Federal Reserve Bank of Chicago - Economic Research
January 1, 2009
We propose a theory of mergers that combines managerial merger motives with an industry-level regime shift that may lead to value-increasing merger opportunities. Anticipation of these merger opportunities can lead to defensive acquisitions, where managers acquire other firms to avoid losing private benefits if their firms are acquired, or "positioning" acquisitions, where firms position themselves as more attractive takeover targets to earn takeover premia. The identity of acquirers and targets and the profitability of acquisitions depend on the distribution of firm sizes within an industry, among other factors. We find empirical support for some unique predictions of our theory.
Number of Pages in PDF File: 85
Keywords: Mergers, Merger Waves
JEL Classification: G34working papers series
Date posted: May 4, 2005 ; Last revised: February 25, 2009
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