Incentives to Mergers
Issue: What set of factors can explain explain merger activity?
NOTE:
The following list is by no means exhaustive.
Moreover, we do not mean to suggest that any specific merger can be explained
by a single underlying factor.
| The pursuit of monopoly or a dominant market position. |
| The pursuit of pecuniary and technical economies. |
| The development of the junk bond market. Hear audio explanation (wav) |
| The desire by takeover specialists to arbitrate the difference between the market value of equity outstanding and the liquidation or "bust up" value of the firm. [see Warren E. Buffett et al. "Hostile Takeovers and Junk Bond Financing: A Panel Discussion," in Knights, Raiders, and Targets, Coffee, ed. New York: Oxford University Press, 1988. Also see Walter Adams and James Brock. . New York: Pantheon Books, 1989.Dangerous Pursuits: Mergers and Acquisitions in the Age of Wall Street]. Hear audio explanation (wav) |
| The desire by the corporate merger "brokers" (i.e. investment bankers, consultants, attorneys, and others who supply merger & acquisition services) to earn generous consulting fees. [see Du Boff and Herman." The Promotional-Financial Dynamic of Merger Movements: A Historical Perspective," Journal of Economic Issues, March 1989: 107-133]. Hear comment (wav) |
| The desire of top corporate officials to make a favorable impression on influential industry analysts or institutional portfolio managers. |
| The
reduction of agency
costs associated
with the principal-agent
problem. |
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