Eat or be eaten : a theory of mergers and merger waves / Gary Gorton, Matthias Kahl, Richard Rosen.

Format:

Book

Author/Creator:

Gorton, Gary, author.

Kahl, Matthias, author.

Rosen, Richard Joseph, author.

Series:

Working Paper Series (National Bureau of Economic Research) ; Number w11364.

Working Paper Series (National Bureau of Economic Research) ; Number w11364

Language:

English

Subjects (All):

Consolidation and merger of corporations--Econometric models.

Consolidation and merger of corporations.

Physical Description:

1 online resource (64 pages) : illustrations.

Place of Publication:

Cambridge, Massachusetts : National Bureau of Economic Research, 2005.

Summary:

In this paper, we present a model of defensive mergers and merger waves. We argue that mergers and merger waves can occur when managers prefer that their firms remain independent rather than be acquired. We assume that managers can reduce their chance of being acquired by acquiring another firm and hence increasing the size of their own firm. We show that if managers value private benefits of control sufficiently, they may engage in unprofitable defensive acquisitions. A technological or regulatory change that makes acquisitions profitable in some future states of the world can induce a preemptive wave of unprofitable, defensive acquisitions. The timing of mergers, the identity of acquirers and targets, and the profitability of acquisitions depend on the size of the private benefits of control, managerial equity ownership, the likelihood of a regime shift that makes some mergers profitable, and the distribution of firm sizes within an industry.

Notes:

Description based on publisher supplied metadata and other sources.