Thursday, March 26, 2015

Merger Waves: Are Private Firms Different?

We've talked quite a bit in these posts about merger waves. Previous research finds differential results for firms that merge before, during and after a merger wave in their industry.  Today's post links to new research that finds interesting results regarding how public and private firms participate in merger waves  and the resulting (and different) outcomes. The article, is entitled, "Private and Public Merger Waves" and is authored by Vojislav Maksimovic, Gordon M. Phillips and Liu Yang.  The abstract is below.

                                   Private and Public Merger Waves


We examine the participation of public and private firms in merger waves and productivity outcomes. We show that public firms participate more than private firms as buyers and sellers of assets and their participation is more cyclical. Public firms are affected more by credit spreads and aggregate market valuation. Public firm transactions are also impacted positively by their stock market valuations and liquidity. Public firm acquisitions realize higher gains in productivity, particularly when their transactions occur on-the-wave and when their firms' stock is liquid and highly valued. We show that our results are not just driven by the fact that public firms have better access to capital. Using productivity data from early in the firm's life, we find that better private firms subsequently select to become public and that these initial conditions predict higher participation in asset purchases and sales five and more years later.

The complete paper can be downloaded here.

All the best,


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