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The Importance of Industry Links in Merger Waves

159 Pages Posted: 14 Dec 2009 Last revised: 30 Mar 2016

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Jarrad Harford

University of Washington

Date Written: December 19, 2012

Abstract

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.

Keywords: Mergers & Acquisitions, Product Markets, Networks

JEL Classification: G34, L22

Suggested Citation

Ahern, Kenneth R. and Harford, Jarrad, The Importance of Industry Links in Merger Waves (December 19, 2012). Journal of Finance, 2014, vol. 69(2): 527-576.. Available at SSRN: https://ssrn.com/abstract=1522203 or http://dx.doi.org/10.2139/ssrn.1522203

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)

HOME PAGE: http://faculty.washington.edu/jarrad/

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