scholarly journals The Aggregate Implications of Mergers and Acquisitions

2020 ◽  
Author(s):  
Joel M David
Keyword(s):  
Steady State ◽  
Mergers And Acquisitions ◽  
Merger Activity ◽  
Boundaries Of The Firm ◽  
Target Firms ◽  
Beneficial Impact ◽  
Search And Matching Model ◽  
Micro Level ◽  
Firm Selection ◽  
Reallocation Of Resources

Abstract This paper develops a search and matching model of mergers and acquisitions (M&A) and uses it to evaluate the implications of merger activity for aggregate economic outcomes. The theory is consistent with a rich set of facts on US M&A, including sorting among merging firms, a substantial merger premium and serial acquisition. It provides a sharp link between these facts and the nature of merger gains. At the micro-level, both complementarities between merging firms and productivity improvements of target firms are important in generating gains. At the macro-level, the model suggests a significant beneficial impact of M&A on aggregate outcomes – the contribution to steady state output is 14% and 4% for consumption – which occurs through the reallocation of resources across firms and equilibrium effects on firm selection and new entrepreneurship. Nevertheless, the economy is not efficient, suggesting a scope for policy improvements – a simple flat tax on M&A can raise steady state consumption as much as 2% relative to the laissez-faire equilibrium. In short, the boundaries of the firm can matter for macroeconomic outcomes.

The top-heavy shape of authoritarian bureaucracy: evidence from Russia and China

2021 ◽  
pp. 002085232110588
Author(s):  
Tao Li ◽  
Zhenyu M. Wang
Keyword(s):  
Steady State ◽  
Soviet Union ◽  
Rent Seeking ◽  
Tournament Theory ◽  
The Soviet Union ◽  
Long Run ◽  
Public Sector Reforms ◽  
Micro Level ◽  
Heavy Structure ◽  
Theory Framework

The prevalence of top-heavy bureaucracies in non-democracies cannot be explained by the theories of Parkinson, Tullock, Niskanen, or Simon or by classical managerial theories. When bureaucracy positions carry rents, the competition for promotion becomes a rent-seeking process. Borrowing the career-tournament theory framework from managerial scholarship, we argue that top-heavy bureaucracy resembles a tournament with too many finalists. When rent is centralized at the top (i.e. power centralization), as is the case in many non-democracies, the optimal bureaucracy should be top-heavy, accommodating and encouraging relatively more finalists at the top to compete for the final big prize. We provide suggestive evidence by analyzing ministry organizations in China (1993–2014) and Russia (2002–2015). After some fluctuations, the shape of Russian ministries eventually converged with that of China. In the steady state, their ministry shapes are far more top-heavy than what is prescribed by managerial theories. At the micro-level, ministry power centralization, measured by the perceived influence of the ministers, is correlated with ministry top-heaviness in Russia. Points for practitioners Our theory suggests that a top-heavy authoritarian bureaucratic structure naturally follows from a back-loaded sequential career tournament and an effort-maximizing bureaucratic leader. Our findings also suggest that Chinese and Russian ministries both converge to a highly top-heavy structure in the long run. We demonstrate that the top-heavy structure first arose during the planned-economy experiment in the Soviet Union. Our research sheds new light on public-sector reforms that aim to reduce bureaucracy top-heaviness in autocracies.

scholarly journals Creditor-Focused Corporate Governance: Evidence from Mergers and Acquisitions in Japan

2011 ◽  
Vol 46 (4) ◽  
pp. 1051-1072 ◽  
Author(s):  
Vikas Mehrotra ◽  
Dimitri van Schaik ◽  
Jaap Spronk ◽  
Onno Steenbeek
Keyword(s):  
Corporate Governance ◽  
Mergers And Acquisitions ◽  
Dominant Role ◽  
Sharp Contrast ◽  
Distinctive Features ◽  
Target Firms ◽  
The World ◽  
Main Bank ◽  
The U.S

AbstractMergers in Japan have the dubious distinction of not creating wealth for shareholders of target firms, in sharp contrast to what occurs in much of the rest of the world. Using a sample of 91 mergers from 1982 through 2003 we document several distinctive features of the merger market in Japan: Mergers tend to be countercyclical and appear to be driven chiefly by creditor concerns. In particular, where the merging firms share a common main bank, we find that merger gains are lower. Overall, our results point to a market that is distinctly less shareholder focused than that in the U.S., and a market where creditors play an important, perhaps dominant, role in corporate governance.

Cross-Border Mergers and Acquisitions and the Competitive Positioning of European National Industries

1997 ◽  
Vol 2 (4) ◽  
pp. 359-390
Author(s):  
Massimo G. Colombo ◽  
Sergio Mariotti
Keyword(s):  
Mergers And Acquisitions ◽  
Statistical Tests ◽  
Foreign Direct Investments ◽  
Competitive Advantages ◽  
Competitive Position ◽  
Cross Border ◽  
Target Firms ◽  
Eclectic Paradigm ◽  
International Oligopoly ◽  
Tests Of Hypotheses

This paper relies on the eclectic paradigm of foreign direct investments and Porter's theory on the competitive advantages of nations to study the localisation of target firms of international M&As by European enterprises. Firms' propensities towards extra- and infra-European acquisitions are correlated with the competitive position of European national industries in the international arena. Strategic groups of national industries are created through a cluster analysis based on the Fortune lists of the 500 world largest enterprises. Logit econometric estimates and statistical tests of hypotheses suggest that the share of extra-European acquisitions is greater in a) sectors where European large firms have achieved leadership of the world oligopoly, and b) sectors where the competitive position of Europe is rather weak though stable. Instead, firms belonging to national industries which have been rapidly increasing their share of the international oligopoly during the ′80s concentrate their M&As within Europe. The same holds true for declining weak competitors.

An attempt at a reconciliation of the Sraffian and Kaleckian views on desired utilization

2020 ◽  
Vol 17 (1) ◽  
pp. 61-77
Author(s):  
Reiner Franke
Keyword(s):  
Steady State ◽  
The Other ◽  
Strategic Complementarity ◽  
Functional Specification ◽  
Long Run ◽  
State Position ◽  
Micro Level ◽  
Rate Of Profit ◽  
Increasing Function ◽  
Empirical Material

This paper derives firms’ desired rate of utilization from an explicit maximization of a conjectured rate of profit at the micro level. Invoking a strategic complementarity, desired utilization is thus an increasing function of not only the profit share but also the actual utilization. Drawing on recent empirical material and a straightforward functional specification, the model is subsequently numerically calibrated. In particular, this ensures a unique solution for a steady-state position in which the actual and the endogenous desired rates of utilization coincide. On the other hand, it turns out that the anticipated losses of firms by not producing at the desired level are rather small. Hence there may be only weak pressure on them to close a utilization gap in the ordinary way by suitable adjustments in fixed investment. It is indicated that this finding may serve Kaleckian economists as a more rigorous justification for viewing their equilibria as pertaining to the long run, even if they allow actual utilization to deviate persistently from desired utilization.

scholarly journals The Urge to Merge: The Role of Governance Structures in Mergers and Acquisitions

1970 ◽  
Vol 13 (2) ◽  
pp. 151-166
Author(s):  
Catherine Daily ◽  
Dan Dalton
Keyword(s):  
Decision Making ◽  
Mergers And Acquisitions ◽  
Board Of Directors ◽  
Board Composition ◽  
Outside Directors ◽  
Target Firm ◽  
Target Firms ◽  
The Board Of Directors ◽  
The Relationship

The 1990s have witnessed merger and acquisition activity which rivals that of the 1980s "merger mania." As firms continue to consolidate either within industries or across industries it is appropriate to investigate those aspects of a target firm which might attract a bidder. The board of directors, a central decision-making body in the corporation, may provide insights into this process. This study investigates the relationship between board composition and size and the incidence of a firm being targeted for a merger or acquisition. Results of a logistic regression analysis of a matched set of target firms and firms not targeted for merger or acquisition reveal that target firms have higher proportions of independent outside directors and more total numbers of directors. Moreover, we find that target firms have greater exposure to institutional investors.

scholarly journals Earnings Management Of Mergers And Acquisitions Of Target Candidates And Deal Withdrawn

2017 ◽  
Vol 33 (3) ◽  
pp. 467-474
Author(s):  
Joo-hyun Lim ◽  
Jin-ho Chang
Keyword(s):  
Mergers And Acquisitions ◽  
South Korea ◽  
Earnings Management ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Accruals Quality ◽  
Target Firms ◽  
Transaction Value

In this paper, we investigate the tendencies of target candidate companies to manage earnings, which affects financial reporting quality, in order to increase transaction value, and the withdrawal of deals as a result of low financial reporting quality in M&A in a sample of 316 mergers and acquisitions in South Korea between 2002 and 2011. Using the accruals quality measure developed by Dechow and Dichev (2002) as a proxy for financial reporting quality, we find the following. First, the financial reporting quality of target candidate firms is lower than that of non-target candidate firms because target candidate firms engage in earnings management prior to M&A. Second, low-quality financial reporting of target firms is positively related to the likelihood of deal withdrawal as a result of poor financial reporting quality.

Hedge Fund Activism and Corporate M&A Decisions

2021 ◽  
Author(s):  
Szu-Yin (Jennifer) Wu ◽  
Kee H. Chung
Keyword(s):  
Mergers And Acquisitions ◽  
Selection Bias ◽  
Hedge Funds ◽  
Operating Performance ◽  
Hedge Fund ◽  
Corporate Control ◽  
Market For Corporate Control ◽  
Target Firms ◽  
Governance Practices ◽  
Hedge Fund Activism

This paper shows that hedge fund activism is associated with a decrease in mergers and acquisitions (M&A) and offer premiums and an increase in stock and operating performance. Activist hedge funds improve target firms’ M&A performance by reducing poor M&A, diversifying M&A, and the M&A of firms with multiple business segments. Activist hedge funds improve target firms’ M&A decisions by influencing their governance practices. We show that our results are unlikely driven by selection bias. Overall, activist hedge funds play an important role in the market for corporate control by increasing the efficiency of target firms’ M&A activities through interventions. This paper was accepted by Gustavo Manso, finance.

The role of boutique financial advisors in mergers and acquisitions

2018 ◽  
Vol 44 (2) ◽  
pp. 212-247 ◽  
Author(s):  
Anna Loyeung
Keyword(s):  
Mergers And Acquisitions ◽  
Information Asymmetry ◽  
Abnormal Returns ◽  
Jel Classification ◽  
Financial Advisors ◽  
Acquisition Performance ◽  
Cumulative Abnormal Returns ◽  
Acquiring Firms ◽  
Target Firms

This study examines the choice of boutique financial advisors in mergers and acquisitions, and the consequences of this choice on deal outcomes and post-acquisition performance. Boutique advisors often specialize in a particular industry and focus exclusively on providing advice in mergers and acquisitions. The results suggest that boutique financial advisors are preferred when the deal is considered complex and when information asymmetry is high. The study finds that the benefits of hiring a boutique advisor flow to both the acquirers and the target firms. Acquiring firms benefit in terms of improved post-merger performance, while target firms benefit in terms of higher completion of value-enhancing deals and positive cumulative abnormal returns. Overall, these results provide support for the growing popularity of boutique financial advisors in the Australian market. JEL classification: G24, G34

Out-of-Equilibrium Dynamics with Heterogeneous Capital Goods

2016 ◽  
Vol 12 (02) ◽  
pp. 157-173 ◽  
Author(s):  
Vipin P. Veetil
Keyword(s):  
Steady State ◽  
Macro Level ◽  
Equilibrium Path ◽  
Imperfect Markets ◽  
Capital Goods ◽  
Rational Agents ◽  
Equilibrium Dynamics ◽  
Optimal Mix ◽  
State Agents ◽  
Micro Level

This paper studies the problem of accumulating heterogeneous capital goods in an economy with imperfect markets populated by boundedly rational agents. It relaxes classical assumptions about information and cognition. The agents are not capable of computing an equilibrium path to steady state. Agents discover prices by interacting with each other. The economy accumulates a near-optimal mix of capital goods. The structure of interactions between agents filters their behavior in such a way that limited rationality at the micro-level does not translate to grossly inefficient outcomes at the macro-level.

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