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The Granular Role of Mergers and Acquisitions in Aggregate Fluctuations

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  • Basihos, S.

Abstract

This study investigates the role of firm-specific productivity shocks from mergers and acquisitions (M&A) in explaining aggregate fluctuations. I isolate these shocks by estimating a covariate-adjusted latent factor model on U.S. public firm data (1978–2023) under an event study approach. M&A activity generates significant short-run fluctuations in firm productivity, typically characterized by an initial decline, a rebound to a higher level, and eventual stabilization. A firm-size-weighted average of these shocks explains roughly one-fifth of variations in U.S. economic growth. This result is robust across multiple empirical validations and is not driven by merger waves or prevailing macroeconomic conditions.

Suggested Citation

  • Basihos, S., 2025. "The Granular Role of Mergers and Acquisitions in Aggregate Fluctuations," Janeway Institute Working Papers 2523, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camjip:2523
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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