Quotation Gugler, Klaus, Mueller, Dennis, Weichselbaumer, Michael, Yurtoglu, B. Burcin. 2010. Merger waves: causes and consequencess. EARIE 2010, Istanbul, Türkei, 02.09.-04.09.


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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. We argue that any general theory of mergers must account for both their wave pattern and the association of the peaks in merger activity with peaks in share prices. We offer such an account. We discuss four hypotheses that claim to be able to account for merger waves - two neoclassical and two behavioral hypotheses. We reject the two neoclassical hypotheses, by showing that they are inconsistent with major features of merger waves. We then develop and test the two behavioral hypotheses - the managerial theory and overvaluation hypotheses. The former posits that managers maximize the growth of their companies, and that the over optimism surrounding stock market booms gives managers more discretion to pursue mergers for empire building motives. It thus explains both why mergers come in waves and why they are correlated with stock price movements. The overvaluation hypothesis assumes that managers seek to benefit their shareholders by trading overvalued shares during stock market booms for real assets. We provide support for both hypotheses, but additional evidence from post-merger abnormal returns of acquirers seems to favor the managerial theory.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Merger waves: causes and consequencess
Event EARIE 2010
Year 2010
Date 02.09.-04.09.
Country Turkey
Location Istanbul
URL http://www.earie2010.org/detailed_program.html

Associations

People
Gugler, Klaus (Details)
External
Mueller, Dennis (Universität Wien, Austria)
Weichselbaumer, Michael (Technische Universität Wien, Austria)
Yurtoglu, B. Burcin (Universität Wien, Austria)
Organization
Research Institute for Regulatory Economics FI (Details)
Institute for Quantitative Economics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5370 Industrial economics (Details)
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