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The Determinants of Merger Waves

WZB - Markets and Politics Working Paper No. SP II 2006-01

60 Pages Posted: 27 Feb 2004  

Klaus Peter Gugler

Vienna University of Economics and Business; European Corporate Governance Institute (ECGI)

Dennis C. Mueller

University of Vienna - Center for Business Studies - Department of Economics

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers' shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses.

Keywords: Mergers, merger waves, tender offers

JEL Classification: G34

Suggested Citation

Gugler, Klaus Peter and Mueller, Dennis C. and Yurtoglu, B. Burcin, The Determinants of Merger Waves (January 2006). WZB - Markets and Politics Working Paper No. SP II 2006-01. Available at SSRN: https://ssrn.com/abstract=507282 or http://dx.doi.org/10.2139/ssrn.507282

Klaus Gugler

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

HOME PAGE: http://www.wu.ac.at/iqv/mitarbeiter/gugler

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Dennis C. Mueller

University of Vienna - Center for Business Studies - Department of Economics ( email )

BWZ - BrĂ¼nner Str.
A-1010 Vienna
Austria
+43 1 4277 37484 (Phone)
+43 1 4277 37498 (Fax)

HOME PAGE: http://mailbox.univie.ac.at/~muelled2/

B. Burcin Yurtoglu (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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