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The market for mergers and the boundaries of the firm (2004)
| Venue: | Journal of Finance |
| Citations: | 34 - 4 self |
BibTeX
@ARTICLE{Rhodes-kropf04themarket,
author = {Matthew Rhodes-kropf and David T. Robinson},
title = {The market for mergers and the boundaries of the firm},
journal = {Journal of Finance},
year = {2004},
pages = {1169--1211}
}
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Abstract
We relate the property rights theory of the firm to empirical regularities in the market for mergers and acquisitions. We first show that high market-to-book acquirers typically do not purchase low market-to-book targets. Instead, mergers pair together firms with similar ratios. We then build a continuous-time model of investment and merger activity combining search, scarcity, and asset complementarity to explain this like buys like result. We test the model by relating like-buys-like to search frictions. Search frictions and assortative matching vary inversely, supporting the model over standard explanations. THE BOUNDARIES OF THE FIRM are constantly being drawn and redrawn in the market for corporate control. This activity surely reflects the importance of the placement of the boundaries of the firm, a topic that has received a great deal of attention in economic theory. The goal of this paper is to bridge the gap between the theory of the firm and empirical evidence on mergers, and demonstrate the significance of the theory of the firm for understanding empirical regularities
Keyphrases
empirical regularity standard explanation low market-to-book target property right theory continuous-time model like buy merger activity economic theory assortative matching vary asset complementarity corporate control high market-to-book acquirer empirical evidence great deal search friction similar ratio
