Mergers, Firm Size, and Volatility in a Granular Economy

Jackie M.L. Chan and Han (Steffan) Qi
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Han (Steffan) Qi: Shenzhen University

Review of Economic Dynamics, 2025, vol. 55

Abstract: We study the firm dynamics associated with mergers and acquisitions (M&A) and their implications at the micro and macro levels. Our paper presents three main findings: (i) mergers generate a more fat-tailed firm-size distribution, thereby amplifying granular fluctuations and increasing aggregate volatility; (ii) the impact of mergers depends on strategic market power and endogenous markups; and (iii) under endogenous markups, we provide a novel characterization of the firm size-volatility relationship in which volatility declines disproportionately with size. We build a quantitative model of domestic horizontal mergers and find a sizeable impact of mergers on aggregate volatility using counterfactual analysis. (Copyright: Elsevier)

Keywords: Firm-size distribution; Mergers and acquisitions; Granularity; Size-volatility relationship; Variable markups (search for similar items in EconPapers)
JEL-codes: E30 E32 F12 G34 L11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.red.2024.101254

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