| In this model, mergers are an equilibrium outcome in which acquirers “marry” targets so as to gain access to their organization capital. Firms that face lower costs of learning about a new technology are not necessarily those that can manage it well. If the organization capital is tradable, there should exist a market for it as there are gains from trade. The model generates a merger wave after deregulation or a shock to technology. I show that a model of this kind is able to match some of the stylized facts about mergers, namely that mergers occur in waves, the value created by the merger is larger the larger the differences in managerial abilities and the q of acquirer tends to be larger than that of the target. At the same time, this model has some unique empirical predictions: it predicts that the ratio of the q of target to the q of acquirer and the ratio of productivities of target and acquirer rise during the merger wave. I compare the implied wave to the actual merger wave in the telecom sector, which was deregulated just before the merger wave took place. The data seems to confirm the theoretical implications of the model, namely, the dynamic behavior of the relative q and the relative productivity. |
