Merger waves: causes and consequencess

  • Gugler, K. (Contributor)
  • Dennis Mueller (Contributor)
  • Michael Weichselbaumer (Contributor)
  • B. Burcin Yurtoglu (Contributor)

Activity: Talk or presentationScience to science

Description

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. We argue that any general theory of mergers must account for both their wave pattern and the association of the peaks in merger activity with peaks in share prices. We offer such an account. We discuss four hypotheses that claim to be able to account for merger waves - two neoclassical and two behavioral hypotheses. We reject the two neoclassical hypotheses, by showing that they are inconsistent with major features of merger waves. We then develop and test the two behavioral hypotheses - the managerial theory and overvaluation hypotheses. The former posits that managers maximize the growth of their companies, and that the over optimism surrounding stock market booms gives managers more discretion to pursue mergers for empire building motives. It thus explains both why mergers come in waves and why they are correlated with stock price movements. The overvaluation hypothesis assumes that managers seek to benefit their shareholders by trading overvalued shares during stock market booms for real assets. We provide support for both hypotheses, but additional evidence from post-merger abnormal returns of acquirers seems to favor the managerial theory.
Period2 Sep 20104 Sep 2010
Event titleEARIE 2010
Event typeUnkonwn
Degree of RecognitionInternational

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502013 Industrial economics