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Acquisitions and Investment


  • Erard, Brian
  • Schaller, Huntley


We derive a simple theoretical framework in which acquisitions are treated as an alternative way of obtaining capital goods. Our framework predicts that both investment and acquisitions are positively related to a firm's shadow value of capital. We transform our theoretical specification into an econometric model, which we then estimate using a long panel data-set spanning 503 US firms over 15 consecutive years. Our results indicate that an increase in the shadow value of capital has approximately the same proportionate effect on the level of acquisitions as it does on investment. This result proves to be robust to a variety of alternative specifications. Copyright 2002 by The London School of Economics and Political Science

Suggested Citation

  • Erard, Brian & Schaller, Huntley, 2002. "Acquisitions and Investment," Economica, London School of Economics and Political Science, vol. 69(275), pages 391-413, August.
  • Handle: RePEc:bla:econom:v:69:y:2002:i:275:p:391-413

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    References listed on IDEAS

    1. Artis, Michael J & Zhang, W, 1997. "International Business Cycles and the ERM: Is There a European Business Cycle?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 2(1), pages 1-16, January.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Shantayanan Devarajan & Dani Rodrik, 1991. "Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa," NBER Working Papers 3727, National Bureau of Economic Research, Inc.
    4. Laurence Boone, 1997. "Symmetry and Asymmetry of Supply and Demand Shocks in the European Union," Working Papers 1997-03, CEPII research center.
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    Cited by:

    1. Klaus Gugler & Dennis C. Mueller & B. Burçin Yurtoglu, 2006. "The Determinants of Merger Waves," CIG Working Papers SP II 2006-01, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    2. Gugler, Klaus & Mueller, Dennis C. & Weichselbaumer, Michael, 2012. "The determinants of merger waves: An international perspective," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 1-15.
    3. Shutao Cao, 2008. "A Model of Costly Capital Reallocation and Aggregate Productivity," Staff Working Papers 08-38, Bank of Canada.

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