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The impact of financial and economic conditions on aggregate merger activity
Author(s) -
Polonchek John A.,
Sushka Marie E.
Publication year - 1987
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090080205
Subject(s) - boom , economics , aggregate (composite) , investment (military) , capital (architecture) , monetary economics , sample (material) , finance , chemistry , materials science , archaeology , chromatography , environmental engineering , politics , political science , law , engineering , composite material , history
A model of aggregate merger activity is developed by integrating the literature on aggregate investment in fixed capital into a microfinance framework. Mergers are viewed as the result of firms capital budgeting processes, and two major categories of explanatory variables emerge: (1) cost of capital and related financial effects, and (2) output effects. Regressions, estimated to explain the number of large mining and manufacturing mergers over the sample period 1956–1978, provide evidence consistent with this view. In addition, the model explains the high level of merger activity during the conglomerate boom of 1967–9.