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Dynamic M&A strategy: Modeling optimal acquisition timing using Brownian motion

Author

Listed:
  • Yuta Motoyama

    (Goto Chuo Hospital)

Abstract

This paper investigates the optimal strategy for mergers and acquisitions (M&A) within corporate finance. We assume that two role model companies significantly influence the effort levels of other companies. As the effort level affects a company's future rate of return, we model this rate using Brownian motion to determine the optimal timing for M&A. Through this approach, we derive the optimal M&A strategy, specifying when and how much to acquire. Two illustrative examples are provided to demonstrate constructive acquisition strategies. This research contributes to the literature by offering a theoretical framework that optimizes M&A strategy, particularly regarding acquisition timing and scale, in a stochastic environment.

Suggested Citation

  • Yuta Motoyama, 2025. "Dynamic M&A strategy: Modeling optimal acquisition timing using Brownian motion," Economics Bulletin, AccessEcon, vol. 45(2), pages 885-895.
    • Handle: RePEc:ebl:ecbull:eb-24-00502
    as

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    References listed on IDEAS

    as
    1. Gokkaya, Sinan & Liu, Xi & Stulz, René M., 2023. "Do firms with specialized M&A staff make better acquisitions?," Journal of Financial Economics, Elsevier, vol. 147(1), pages 75-105.
    2. Kaufmann, Matteo & Schiereck, Dirk, 2023. "Acquiring for innovation: Evidence from the U.S. technology industry," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 142308, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Kaufmann, Mattheo & Schiereck, Dirk, 2023. "Acquiring for innovation: Evidence from the U.S. technology industry," Journal of Economic Dynamics and Control, Elsevier, vol. 152(C).
    4. Lukas, Elmar & Pereira, Paulo J. & Rodrigues, Artur, 2019. "Designing optimal M&A strategies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 104(C), pages 1-20.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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