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Technology Shocks, Q, and the Propensity to Merge

Author

Listed:
  • Lihong Han

    (Department of Economics, Illinois College)

  • Peter L. Rousseau

    (Department of Economics, Vanderbilt University)

Abstract

Data on U.S. mergers and aquisitions from 1987 to 2006 indicate that firms with high market-to-book values (i.e., Tobin's Q) tend to merge with firms that have lower Q's, but that target Q's are on average higher than those of firms not involved in mergers at all. We capture this fact with a model in which the ratio of a bidder's Q to that of a prospective target has a non-monotone, inverted U-shaped effect on the probability of the two firms merging. Further, we find that the likelihood of a merger is positively and linearly related to the ratio of the growth potential of an acquirer and its prospective target. Using data from Compustat, a series of bootstrap logit regressions bear out these implications.

Suggested Citation

  • Lihong Han & Peter L. Rousseau, 2009. "Technology Shocks, Q, and the Propensity to Merge," Vanderbilt University Department of Economics Working Papers 0914, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0914
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    References listed on IDEAS

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    Cited by:

    1. Coulibaly, Brahima & Sapriza, Horacio & Zlate, Andrei, 2013. "Financial frictions, trade credit, and the 2008–09 global financial crisis," International Review of Economics & Finance, Elsevier, vol. 26(C), pages 25-38.

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    More about this item

    Keywords

    Total factor productivity; growth potential; bootstrap logit model;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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