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Growing through the merger and acquisition

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  • Xu, Jianhuan

Abstract

The paper studies with an endogenous growth model how the merger and acquisition (M&A) affects the aggregate growth rate. We model the M&A as a capital reallocation process, which can increase both productivity and growth rates of firms. The model is tractable and greatly consistent with patterns observed in the M&A at the micro level. Matching our model to the data, we find that prohibiting the M&A would lead to the reduction of the aggregate growth rate of US economy by 0.1% and the reduction of the aggregate TFP by 5%.

Suggested Citation

  • Xu, Jianhuan, 2017. "Growing through the merger and acquisition," Journal of Economic Dynamics and Control, Elsevier, vol. 80(C), pages 54-74.
    • Handle: RePEc:eee:dyncon:v:80:y:2017:i:c:p:54-74
    DOI: 10.1016/j.jedc.2017.04.006
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    References listed on IDEAS

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    Cited by:

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    2. Méndez Ortega, Carles, & Teruel, Mercedes, 2018. "To acquire or not to acquire: Mergers and Acquisitions in the Software Industry," Working Papers 2072/307043, Universitat Rovira i Virgili, Department of Economics.
    3. Hossain, Mohammed Sawkat, 2021. "Merger & Acquisitions (M&As) as an important strategic vehicle in business: Thematic areas, research avenues & possible suggestions," Journal of Economics and Business, Elsevier, vol. 116(C).
    4. Nie, Pu-yan & Wang, Chan & Wen, Hong-xing, 2021. "Horizontal mergers under uniform resource constraints," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    5. Galina Besstremyannaya & Richard Dasher & Sergei Golovan, 2018. "Growth through acquisition of innovations," Working Papers w0247, New Economic School (NES).
    6. Carles Méndez-Ortega & Mercedes Teruel, 2020. "To acquire or not to acquire: the effects of acquisitions in the software industry," Journal of Evolutionary Economics, Springer, vol. 30(3), pages 793-814, July.
    7. Wei, Shang-Jin & Wei, Ziru & Xu, Jianhuan, 2021. "On the market failure of “missing pioneers”," Journal of Development Economics, Elsevier, vol. 152(C).
    8. Devonald, L. & Higson, C. & Holly, S., 2017. "Aggregate and Firm level volatility: the role of acquisitions and disposals," Cambridge Working Papers in Economics 1748, Faculty of Economics, University of Cambridge.
    9. Jungho Lee, 2020. "Estimating the benefits and costs of forming business partnerships," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 531-562, June.
    10. Galina Besstremyannaya & Richard Dasher & Sergei Golovan, 2019. "Growth through acquisition of innovations," Working Papers w0247, Center for Economic and Financial Research (CEFIR).

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    More about this item

    Keywords

    Growth; Merger and acquisition; Knowledge spillover; Matching; Complementarity; Capital reallocation;
    All these keywords.

    JEL classification:

    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General

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