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Acquisitions and Investment

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Abstract

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
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Suggested Citation

  • Brian Erard & Huntley Schaller, 1994. "Acquisitions and Investment," Carleton Economic Papers 94-01, Carleton University, Department of Economics, revised Aug 2002.
  • Handle: RePEc:car:carecp:94-01
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    Cited by:

    1. 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.
    2. 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).
    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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    Keywords

    acquisitions; investments;

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