Acquiring Growth

Levine, Oliver

doi:10.2139/ssrn.1928255

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Acquiring Growth

Journal of Financial Economics (JFE), Forthcoming

54 Pages Posted: 18 Sep 2011 Last revised: 12 Aug 2017

See all articles by Oliver Levine

Oliver Levine

University of Wisconsin - Madison - Department of Finance

Date Written: September 27, 2017

Abstract

I develop a model of mergers in which M&A deals are used to reallocate investment opportunities. In equilibrium, acquirers lack internal growth options and seek out projects from targets in the M&A market. The model is able to reconcile many features of the merger data that I document, including the high productivity, investment, and valuation of target firms. Furthermore, in my model, profitability is highly predictive of acquisition, and merger transactions naturally lead to a substantial drop in profitability despite creating value for the acquirer.

Keywords: Mergers and acquisitions; Growth options; Intangible capital; Corporate investment

JEL Classification: G31, G32, G34

Suggested Citation: Suggested Citation

Levine, Oliver, Acquiring Growth (September 27, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1928255 or http://dx.doi.org/10.2139/ssrn.1928255