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The Determinants of Merger Waves

Author

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  • Klaus Gugler
  • Dennis C. Mueller
  • B. Burçin Yurtoglu

Abstract

One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers’ shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses. ZUSAMMENFASSUNG - (Die Determinanten von Fusionswellen) Es ist eines der auffallendsten Merkmale von Unternehmenszusammen-schlüssen, dass sie in Wellen stattfinden und dass diese Wellen mit dem Anstieg der Aktienkurse und des Preis/ Ertragsverhältnisses zusammen hängen. Wir untersuchen vier Hypothesen, die als Erklärung von Unternehmenszusammenschlüssen genannt werden: die der Industrieschocks, die q-Hypothese, die Hypothese der Überbewertung und die Hypothesen des Ermessensspielraums von Managern. Die ersten zwei sind neoklassischer Natur insofern als sie davon ausgehen, dass Manager Gewinne maximieren, Unternehmenszusammenschlüsse Reichtum schaffen und der Kapitalmarkt effizient ist. Die zwei letzteren sind Verhaltenshypothesen, die die neo-klassischen Annahmen (auf unterschiedliche Weise) lockern. Wir untersuchen die vier Hypothesen, indem wir Modellschätzungen der von Unternehmen akquirierten Aktien vornehmen. Dabei werden in den Modellen die Charakteristika der bei Zusammenschlüssen aufgekauften Unternehmen identifiziert und die Rendite für die Aktionäre des aufkaufenden Unternehmens geschätzt. Auch wenn alle vier Hypothesen in gewisser Hinsicht Bestätigung finden, untermauern die meisten Belege die zwei Verhaltenshypothesen.

Suggested Citation

  • 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).
  • Handle: RePEc:wzb:wzebiv:spii2006-01
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    References listed on IDEAS

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    Cited by:

    1. Marcelo Resende, 2008. "Mergers and acquisitions waves in the UK: a Markov-switching approach," Applied Financial Economics, Taylor & Francis Journals, vol. 18(13), pages 1067-1074.
    2. Dennis C. Mueller & B. Burcin Yurtoglu, 2007. "Corporate governance and the returns to acquiring firms' shareholders: an international comparison," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 879-896.
    3. Banal-Estanol, A. & Heidhues, P., 2006. "Merged clusters during economic booms," Working Papers 06/07, Department of Economics, City University London.
    4. Albert Banal‐Estañol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2010. "Screening And Merger Activity," Journal of Industrial Economics, Wiley Blackwell, vol. 58(4), pages 794-817, December.
    5. Barros, Pedro P. & Clougherty, Joseph A. & Seldeslachts, Jo, 2013. "Europeanization of EU member-state competition policy: The commission's leadership role," International Review of Law and Economics, Elsevier, vol. 34(C), pages 41-51.

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    More about this item

    Keywords

    Mergers waves; managerial discretion; overvaluation;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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