Eat or Be Eaten: A Theory of Mergers and Firm Size

85 Pages Posted: 4 May 2005 Last revised: 25 Feb 2009

See all articles by Gary B. Gorton

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Matthias Kahl

Kelley School of Business, Indiana University

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2009

Abstract

We propose a theory of mergers that combines managerial merger motives with an industry-level regime shift that may lead to value-increasing merger opportunities. Anticipation of these merger opportunities can lead to defensive acquisitions, where managers acquire other firms to avoid losing private benefits if their firms are acquired, or "positioning" acquisitions, where firms position themselves as more attractive takeover targets to earn takeover premia. The identity of acquirers and targets and the profitability of acquisitions depend on the distribution of firm sizes within an industry, among other factors. We find empirical support for some unique predictions of our theory.

Keywords: Mergers, Merger Waves

JEL Classification: G34

Suggested Citation

Gorton, Gary B. and Kahl, Matthias and Rosen, Richard J., Eat or Be Eaten: A Theory of Mergers and Firm Size (January 1, 2009). Available at SSRN: https://ssrn.com/abstract=713769 or http://dx.doi.org/10.2139/ssrn.713769

Gary B. Gorton (Contact Author)

Yale School of Management ( email )

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HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

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Yale University - Yale Program on Financial Stability

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P.O. Box 208200
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Matthias Kahl

Kelley School of Business, Indiana University ( email )

Department of Finance
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United States

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

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