Economic tides and merger waves: insights from a long-run perspective
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
Acknowledgements
The authors extend their deepest gratitude to two anonymous referees and Prof. Niklas Wagner, the editor of Studies in Economics and Finance, whose insightful feedback significantly contributed to refining the paper’s content. The authors would like to extend special thanks to the participants in the research seminars at Lake Forest College’s Department of Economics, Business, and Finance. The authors are also grateful to the Institute for Mergers, Acquisitions, and Alliances (IMAA) for providing the data on mergers and acquisitions. Any remaining errors are authors’ own.
Citation
Emiru, T. and Weisblatt, S. (2024), "Economic tides and merger waves: insights from a long-run perspective", Studies in Economics and Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SEF-09-2023-0566
Publisher
:Emerald Publishing Limited
Copyright © 2024, Emerald Publishing Limited