Corporate Alliances, Resource Reallocation, and the Propagation of Merger Activity
56 Pages Posted: 28 Feb 2008 Last revised: 27 Dec 2013
Date Written: October 14, 2013
We model an economy of inter-firm alliances, and we show that such alliances are a channel for merger propagation. We confirm the model's main prediction in data, where the likelihood that a firm is involved in M&A increases significantly if its partners engaged in M&A in the past. We present three additional empirical results: (i) the propagation effect is stronger when we include proxies for the strength of post-partner-merger resource reallocation, as predicted by the model; (ii) merger propagation also depends on indirect alliance-network connections; (iii) partner mergers also lead to a higher likelihood of entering into new alliances.
Keywords: mergers, merger waves, alliances
JEL Classification: D2, G34
Suggested Citation: Suggested Citation