IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

The Aggregate Implications of Mergers and Acquisitions

  • Joel David

    (UCLA)

Mergers and acquisitions can play a transformative role in the evolution of firms and industries and have become an important feature of the US economy, representing about 5% of GDP and 80% of total capital reallocation among large US firms. In this paper, I develop a search-theoretic model of mergers and acquisitions in a dynamic general equilibrium setting and assess the implications for aggregate economic performance. I use a transaction-level dataset to document a number of empirical patterns in US merger activity: (1) acquiring firms are generally larger and more profitable than their targets; (2) there is a large degree of positive assortative matching between transacting firms; and (3) acquirers tend to be the largest and most profitable firms, but targets are not the smallest or least profitable. I build a parsimonious model that is able to address these facts and nests several existing theories of merger activity as special cases. I explore the merger patterns predicted by these theories and show that each meets difficulties in fitting the full set of empirical facts. I calibrate the model to match moments from the transaction-level data, as well as other salient features of the US economy. The calibrated model is capable of replicating the stylized facts quite closely and sheds new light as to how surplus is generated from merger and how the gains are split. I find that merger activity generates potentially large long-run gains in aggregate performance, measuring about 30% in aggregate productivity and output, and about 11% in welfare.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://economicdynamics.org/meetpapers/2012/paper_1178.pdf
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 1178.

as
in new window

Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:red:sed012:1178
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed012:1178. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.