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Technology Shocks, Q, and the Propensity to Merge

Lihong Han and Peter Rousseau ()

No 914, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Data on U.S. mergers and aquisitions from 1987 to 2006 indicate that firms with high market-to-book values (i.e., Tobin's Q) tend to merge with firms that have lower Q's, but that target Q's are on average higher than those of firms not involved in mergers at all. We capture this fact with a model in which the ratio of a bidder's Q to that of a prospective target has a non-monotone, inverted U-shaped effect on the probability of the two firms merging. Further, we find that the likelihood of a merger is positively and linearly related to the ratio of the growth potential of an acquirer and its prospective target. Using data from Compustat, a series of bootstrap logit regressions bear out these implications.

Keywords: Total factor productivity; growth potential; bootstrap logit model (search for similar items in EconPapers)
JEL-codes: G3 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-com
Date: 2009-09
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