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Mergers and Technological Change: 1885-1998

Author

Listed:
  • Boyan Jovanovic

    (The University of Chicago and NYU)

  • Peter L. Rousseau

    () (Department of Economics, Vanderbilt University)

Abstract

We analyze mergers over the past century in a growth model that emphasizes technological change. We explain the positive relation between mergers and stock prices, the positive relation between internal growth of firms and their acquisitions, and the positive relation of mergers with other measures of reallocation such as entry and exit. More broadly, mergers help firms to reallocate assets more smoothly, thereby raising returns to investment and the growth rate. We also find that merger waves are shorter when technological change is more dramatic, when the capital of other firms is less costly to transfer, and when entry and exit are a smooth reallocation mechanism. This last result underscores that entry and exit on the one hand and mergers on the other are substitute means of reallocation..

Suggested Citation

  • Boyan Jovanovic & Peter L. Rousseau, 2001. "Mergers and Technological Change: 1885-1998," Vanderbilt University Department of Economics Working Papers 0116, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:0116
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    File URL: http://www.accessecon.com/pubs/VUECON/vu01-w16.pdf
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    References listed on IDEAS

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    1. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    2. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-784, July.
    3. Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters,in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
    4. Ralph L. Nelson, 1959. "Merger Movements in American Industry, 1895-1956," NBER Books, National Bureau of Economic Research, Inc, number nels59-1.
    5. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110-110.
    6. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    7. Telser,Lester G., 1987. "A Theory of Efficient Cooperation and Competition," Cambridge Books, Cambridge University Press, number 9780521306195.
    8. Michael Gort, 1969. "An Economic Disturbance Theory of Mergers," The Quarterly Journal of Economics, Oxford University Press, vol. 83(4), pages 624-642.
    9. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    10. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351-351.
    11. Baker, George P, 1992. " Beatrice: A Study in the Creation and Destruction of Value," Journal of Finance, American Finance Association, vol. 47(3), pages 1081-1119, July.
    12. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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    Citations

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    Cited by:

    1. Vancea Mariana, 2012. "An Overview On The Determinants Of Mergers And Acquisitions Waves," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 390-397, December.
    2. Bhattacharjee Arnab & Higson Christopher & Holly Sean & Kattuman Paul, 2009. "Macroeconomic Instability and Corporate Failure: The Role of the Legal System," Review of Law & Economics, De Gruyter, vol. 5(1), pages 1-32, January.
    3. Mirella Damiani & Fabrizio Pompei, 2011. "The market for corporate control: do countries and technological regimes matter?," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(6), pages 725-751, October.
    4. A. Bhattacharjee & C. Higson & S. Holly & P. Kattuman, 2009. "Macroeconomic Instability and Business Exit: Determinants of Failures and Acquisitions of UK Firms," Economica, London School of Economics and Political Science, vol. 76(301), pages 108-131, February.

    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • N2 - Economic History - - Financial Markets and Institutions
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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