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Market for Mergers and the Boundaries of the Firm

By:

Rhodes-Kropf Matthew

Material type: Article

ArticleLanguage: ENG Series: ; 63Publication details: Jun 2008 0Edition: 3Description: 1169- 1211 PpSubject(s):

Mergers, Property Rights Theory

DDC classification:

Online resources:

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Summary: 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.

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Item type	Current library	Call number	Status	Date due	Barcode
Articles	Main Library	Rho (Browse shelf(Opens below))	Available		AR9994

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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.

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