The Market for Mergers and the Boundaries of the Firm

Journal Article (Journal Article)

We relate the property rights theory of the firm to empirical regularities in the market for mergers and acquisitions. We first show that high market-to-book acquirers typically do not purchase low market-to-book targets. Instead, mergers pair together firms with similar ratios. We then build a continuous-time model of investment and merger activity combining search, scarcity, and asset complementarity to explain this like buys like result. We test the model by relating like-buys-like to search frictions. Search frictions and assortative matching vary inversely, supporting the model over standard explanations.

Full Text

Duke Authors

Cited Authors

  • Rhodes-Kropf, M; Robinson, DT

Published Date

  • January 1, 2008

Published In

Volume / Issue

  • 63 / 3

Start / End Page

  • 1169 - 1211

Electronic International Standard Serial Number (EISSN)

  • 1540-6261

International Standard Serial Number (ISSN)

  • 0022-1082

Digital Object Identifier (DOI)

  • 10.1111/j.1540-6261.2008.01355.x

Citation Source

  • Scopus