Economic tides and merger waves: insights from a long-run perspective

Tilahun Emiru and Sara Weisblatt

Studies in Economics and Finance, 2024, vol. 42, issue 1, 75-88

Abstract: Purpose - This study aims to examine the long-run relationship between macroeconomic and financial conditions and the aggregate number of mergers and acquisitions (M&As) in the USA, drawing on data spanning from 1928 to 2019. Design/methodology/approach - The study estimated a Vector Error Correction Model (VECM) encompassing four variables: the aggregate number of M&As, industrial production, the rates on three-month U.S. treasury bills and the closing price of the Dow Jones Industrial Average. Findings - There exists a long-run relationship among the four variables. An increase in industrial production is associated with a fall in M&A transactions, reflecting a tendency for M&A waves to start during economic downturns. Similarly, contractionary monetary policy, which often happens during good economic and financial times, leads to a decline in M&A activity. When the equilibrium among the four variables is disrupted, the aggregate number of M&As, along with financial conditions, works to restore the equilibrium. Originality/value - To the best of the authors’ knowledge, this is the first study to examine the long-run relationship between macroeconomic and financial conditions using data spanning nearly a century.

Keywords: Mergers; Industrial production; Financial conditions; Vector Error Correction Model; G34; G40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-09-2023-0566

DOI: 10.1108/SEF-09-2023-0566

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