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Acquiring growth

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  • Levine, Oliver

Abstract

I develop a model of mergers in which M&A deals are used to reallocate investment opportunities. In equilibrium, acquirers lack internal growth options and seek out projects from targets in the M&A market. The model is able to reconcile many features of the merger data that I document, including the high productivity, investment, and valuation of target firms. Furthermore, in my model, profitability is highly predictive of acquisition, and merger transactions naturally lead to a substantial drop in profitability despite creating value for the acquirer.

Suggested Citation

  • Levine, Oliver, 2017. "Acquiring growth," Journal of Financial Economics, Elsevier, vol. 126(2), pages 300-319.
    • Handle: RePEc:eee:jfinec:v:126:y:2017:i:2:p:300-319
    DOI: 10.1016/j.jfineco.2017.07.001
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    2. Wang, Wenyu, 2018. "Bid anticipation, information revelation, and merger gains," Journal of Financial Economics, Elsevier, vol. 128(2), pages 320-343.
    3. Harris, Jeremiah & O'Brien, William, 2018. "U.S. worldwide taxation and domestic mergers and acquisitions," Journal of Accounting and Economics, Elsevier, vol. 66(2), pages 419-438.
    4. Dimopoulos, Theodosios & Sacchetto, Stefano, 2017. "Merger activity in industry equilibrium," Journal of Financial Economics, Elsevier, vol. 126(1), pages 200-226.
    5. Oh, Seungjoon, 2018. "Fire-sale acquisitions and intra-industry contagion," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 265-293.

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    More about this item

    Keywords

    Mergers and acquisitions; Growth options; Intangible capital; Corporate investment;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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