The Market for Mergers and the Boundaries of the Firm

Published

Journal Article

© 2008 the American Finance Association. 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