Merger Activity in Industry Equilibrium

66 Pages Posted: 6 Sep 2014 Last revised: 8 Oct 2016

See all articles by Theodosios Dimopoulos

Theodosios Dimopoulos

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Swiss Finance Institute

Stefano Sacchetto

IESE Business School

Date Written: September 23, 2016

Abstract

We quantify the impact of merger activity on productive efficiency. We develop and calibrate a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. Mergers affect productivity directly through realized synergies, and indirectly through firms' incentives to enter or exit the industry. Merger activity increases average firm productivity by 4.8%, of which 4.1% reflects the accumulation of synergies, and 0.7% the interaction between merger options and firms' entry and exit decisions. We show that ignoring the implications of merger activity for public policies that promote entry can reverse the expected impact of these policies on productivity.

Keywords: Mergers, Industry Equilibrium

JEL Classification: D21, D92, E22, E32, G34

Suggested Citation

Dimopoulos, Theodosios and Sacchetto, Stefano, Merger Activity in Industry Equilibrium (September 23, 2016). Journal of Financial Economics (JFE), Forthcoming, Swiss Finance Institute Research Paper No. 14-56, Available at SSRN: https://ssrn.com/abstract=2492148 or http://dx.doi.org/10.2139/ssrn.2492148

Theodosios Dimopoulos

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
0041 (0) 21 692 33 98 (Phone)

HOME PAGE: http://www.hec.unil.ch/people/tdimopoulos

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Stefano Sacchetto (Contact Author)

IESE Business School ( email )

08034 Barcelona
Spain
+34 93 253 6461 (Phone)

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