Acquiring Growth

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


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

Levine, Oliver, Acquiring Growth (September 27, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

Oliver Levine (Contact Author)

University of Wisconsin - Madison - Department of Finance ( email )

975 University Avenue
Madison, WI 53706
United States


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