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Mergers and Government Policy

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  • Margarita Sapozhnikov

    (Boston College)

Abstract

It has long been thought that government antitrust policy has an effect on aggregate merger and acquisition activity, but the empirical support for this hypothesis has been weak and inconsistent. This paper uses a new empirical specification and a new dataset on mergers and acquisitions to provide support for this conjecture. Regression analysis shows that government policy has a significant influence on mergers and that the nature of the effects depends on the type of merger. Fitting the time series into a two-state Markov switching model shows that conglomerate and horizontal time series fol low different dynamics for the last half century, which is most likely caused by the dissimilar treatment of the two types of merger by the government. Only the conglomerate merger and acquisition time series is well described by a two-state Markov switching model. In contrast, the horizontal time series has a break in the early 1980s that may be attributed to the dramatic change in government policy.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 656.

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Length: 37 pages
Date of creation: 14 Nov 2006
Date of revision:
Handle: RePEc:boc:bocoec:656

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Keywords: Antitrust enforcement; mergers and acquisitions; time series models; Markov switching;

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  1. Devra L. Golbe & Lawrence J. White, 1988. "A Time-Series Analysis of Mergers and Acquisitions in the U.S. Economy," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 265-310 National Bureau of Economic Research, Inc.
  2. Bittlingmayer, George, 1985. "Did Antitrust Policy Cause the Great Merger Wave?," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 77-118, April.
  3. Jonathan B. Baker, 2003. "The Case for Antitrust Enforcement," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 27-50, Fall.
  4. Gort, Michael, 1969. "An Economic Disturbance Theory of Mergers," The Quarterly Journal of Economics, MIT Press, vol. 83(4), pages 624-42, November.
  5. Barkoulas, John T. & Baum, Christopher F. & Chakraborty, Atreya, 2001. "Waves and persistence in merger and acquisition activity," Economics Letters, Elsevier, vol. 70(2), pages 237-243, February.
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