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When Is One Plus One More Than Two? Theory and Evidence of Merger Motivations

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  • Chune Young Chung
  • Seok‐Kyun Hur
  • Chang Liu

Abstract

We devise a neoclassical economic model that reveals the underlying motivations for mergers, without resorting to distorted firm decisions or stock market inefficiency. Using empirical analyses to verify the model's predictions, we discover that mergers are more likely in economic booms than in recessions. Furthermore, we assert that a firm with insufficient physical capital is likely a bidder in a merger, whereas a firm with large physical capital is likely a target. Our findings are largely consistent with the waves of mergers during economic booms and the theory on operational synergies.

Suggested Citation

  • Chune Young Chung & Seok‐Kyun Hur & Chang Liu, 2020. "When Is One Plus One More Than Two? Theory and Evidence of Merger Motivations," International Review of Finance, International Review of Finance Ltd., vol. 20(3), pages 771-779, September.
    • Handle: RePEc:bla:irvfin:v:20:y:2020:i:3:p:771-779
    DOI: 10.1111/irfi.12270
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    References listed on IDEAS

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