Quantification of the Evolution of Firm Size Distributions Due to Mergers and Acquisitions

Sandro Claudio Lera and Didier Sornette
Additional contact information
Sandro Claudio Lera: ETH Zurich
Didier Sornette: Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)

No 16-39, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The distribution of firm sizes is known to be heavy tailed. In order to account for this stylized fact, previous studies have focused mainly on growth through investments in a company’s own operations (internal growth). Thereby, the impact of mergers and acquisitions (M&A) on the firm size (external growth) is often not taken into consideration, notwithstanding its potential large impact. In this article, we make a first step into accounting for M&A. Specifically, we describe the effect of mergers and acquisitions on the firm size distribution in terms of an integro-differential equation. This equation is subsequently solved both analytically and numerically for various initial conditions, which allows us to account for different observations of previous empirical studies. In particular, it rationalises shortcomings of past work by quantifying that, in order to observe a significant influence of mergers and acquisitions on the firm size distribution, more extensive datasets would have been required. Our approach is very flexible and can be extended to account for other sources of external growth, thus contributing towards a holistic understanding of the distribution of firm sizes.

Keywords: firm size distribution; mergers and acquisitions; coagulation equation; econophysics (search for similar items in EconPapers)
JEL-codes: C63 D21 G34 L11 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-06
New Economics Papers: this item is included in nep-com and nep-sbm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ssrn.com/abstract=2798540 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1639

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().