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Mergers and Technological Change: 1885-1998

Author

Listed:
  • Boyan Jovanovic

    (The University of Chicago and NYU)

  • Peter L. Rousseau

    (Department of Economics, Vanderbilt University)

Abstract

We analyze mergers over the past century in a growth model that emphasizes technological change. We explain the positive relation between mergers and stock prices, the positive relation between internal growth of firms and their acquisitions, and the positive relation of mergers with other measures of reallocation such as entry and exit. More broadly, mergers help firms to reallocate assets more smoothly, thereby raising returns to investment and the growth rate. We also find that merger waves are shorter when technological change is more dramatic, when the capital of other firms is less costly to transfer, and when entry and exit are a smooth reallocation mechanism. This last result underscores that entry and exit on the one hand and mergers on the other are substitute means of reallocation..

Suggested Citation

  • Boyan Jovanovic & Peter L. Rousseau, 2001. "Mergers and Technological Change: 1885-1998," Vanderbilt University Department of Economics Working Papers 0116, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0116
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    References listed on IDEAS

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    Cited by:

    1. Mirella Damiani & Fabrizio Pompei, 2011. "The market for corporate control: do countries and technological regimes matter?," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 725-751, October.
    2. Benjamin Auer & Frank Schuhmacher, 2013. "RETRACTED ARTICLE: Investor sentiment, stock market valuation and merger activity," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(2), pages 245-245, June.
    3. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
    4. Bhattacharjee Arnab & Higson Christopher & Holly Sean & Kattuman Paul, 2009. "Macroeconomic Instability and Corporate Failure: The Role of the Legal System," Review of Law & Economics, De Gruyter, vol. 5(1), pages 1-32, January.
    5. A. Bhattacharjee & C. Higson & S. Holly & P. Kattuman, 2009. "Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms," Economica, London School of Economics and Political Science, vol. 76(301), pages 108-131, February.
    6. Vancea Mariana, 2012. "An Overview On The Determinants Of Mergers And Acquisitions Waves," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 390-397, December.

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    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • N2 - Economic History - - Financial Markets and Institutions
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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