The Rise of Merger and Acquisitions in the US: Consequences for Investment, Market Concentration, and Profits -An Integrated and a Macroeconomic Approach with Firm-Level Data

Ayoze Alfageme

No PKWP2505, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: This paper establishes a connection between non-financial corporate mergers and acquisitions (M&A) and the rise of large firms, decline productive investment, concentration of markets and profits, and rising markups. First, using Refinitiv M&A deals data, I briefly recount the history of corporate M&A deal making in the last four decades in which this study focuses (1980-2020), with special attention to its sector dynamics. Second, the paper presents a literature review highlighting the gap for the type of study presented here, in terms of both methods and time scope. An articulation of the process from which M&A are linked to the new corporate environment is presented in the form of 6 hypothesis. Third, using Compustat firm-level data I present stylised evidence poiting towards the potential validation of those 6 hypothesis. I found that M&A has become an important corporate growth strategy (hypothesis 1). A steeper drop in capital expenditure among firms with the highest acquisition spending points to scrapping capex for M&A (hypothesis 2). Fed’s flow of funds data suggests corporate funds are redirected to the household sector for M&A payments, potentially depleting corporate funds. A micro-macro tension arises (hypothesis 3), where individual firms grow larger in total assets through M&A to achieve corporate growth goals, while their capex declines, dampening aggregate corporate investment. M&A is also connected to the rise in market concentration (hypothesis 4) and the accumulation of intangibles that create barriers to entry (hypothesis 5). Finally, firms with the most acquisitions, account for 40% of total profits and have higher markups (hypothesis 6). In a period where efforts are aimed at curbing M&A deals, these findings highlight the implications of leaving the M&A market unrestricted.

Keywords: Mergers and Acquisitions; Market Concentration; Corporate Investment; Firm Growth (search for similar items in EconPapers)
JEL-codes: D22 G34 L11 L40 (search for similar items in EconPapers)
Pages: 23
Date: 2025-02
New Economics Papers: this item is included in nep-cfn, nep-com, nep-ind, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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