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Mergers, Firm Size, and Volatility in a Granular Economy

Author

Listed:
  • Jackie M. L. Chan

    (Aarhus University)

  • Han (Steffan) Qi

    (Shenzhen University)

Abstract

We study the firm dynamics associated with mergers and acquisitions (M&A) and their implications at the micro and macro levels. Our paper presents three main findings: (i) mergers generate a more fat-tailed firm-size distribution, thereby amplifying granular fluctuations and increasing aggregate volatility; (ii) the impact of mergers depends on strategic market power and endogenous markups; and (iii) under endogenous markups, we provide a novel characterization of the firm size-volatility relationship in which volatility declines disproportionately with size. We build a quantitative model of domestic horizontal mergers and find a sizeable impact of mergers on aggregate volatility using counterfactual analysis. (Copyright: Elsevier)

Suggested Citation

  • Jackie M. L. Chan & Han (Steffan) Qi, 2025. "Mergers, Firm Size, and Volatility in a Granular Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    • Handle: RePEc:red:issued:23-27
    DOI: 10.1016/j.red.2024.101254
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    More about this item

    Keywords

    Firm-size distribution; Mergers and acquisitions; Granularity; Size-volatility relationship; Variable markups;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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