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The Market for Mergers and the Boundaries of the Firm

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  • MATTHEW RHODES-KROPF
  • DAVID T. ROBINSON

Abstract

We relate the property rights theory of the firm to empirical regularities in the market for mergers and acquisitions. We first show that high market-to-book acquirers typically do not purchase low market-to-book targets. Instead, mergers pair together firms with similar ratios. We then build a continuous-time model of investment and merger activity combining search, scarcity, and asset complementarity to explain this like buys like result. We test the model by relating like-buys-like to search frictions. Search frictions and assortative matching vary inversely, supporting the model over standard explanations. Copyright (c) 2008 by The American Finance Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2008.01355.x
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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 63 (2008)
Issue (Month): 3 (06)
Pages: 1169-1211

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Handle: RePEc:bla:jfinan:v:63:y:2008:i:3:p:1169-1211

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