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Eat or Be Eaten: A Theory of Mergers and Firm Size
Author(s) -
GORTON GARY,
KAHL MATTHIAS,
ROSEN RICHARD J.
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01465.x
Subject(s) - profitability index , mergers and acquisitions , business , industrial organization , anticipation (artificial intelligence) , position (finance) , value (mathematics) , distribution (mathematics) , monetary economics , economics , finance , mathematical analysis , mathematics , machine learning , artificial intelligence , computer science
We propose a theory of mergers that combines managerial merger motives with an industry‐level regime shift that may lead to value‐increasing merger opportunities. Anticipation of these merger opportunities can lead to defensive acquisitions, where managers acquire other firms to avoid losing private benefits if their firms are acquired, or “positioning” acquisitions, where firms position themselves as more attractive takeover targets to earn takeover premia. The identity of acquirers and targets and the profitability of acquisitions depend on the distribution of firm sizes within an industry, among other factors. We find empirical support for some unique predictions of our theory.