Mergers, Firm Size, and Volatility in a Granular Economy

J. M. L. Chan and H. Qi ()
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H. Qi: Audencia Business School

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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.

Keywords: firm-size distribution; mergers and acquisitions; granularity; size-volatility relationship; variable markups (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-sbm
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Published in Toxicological Sciences, 2025, 55 (January 2025), ⟨10.1016/j.red.2024.101254⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04719146

DOI: 10.1016/j.red.2024.101254

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