A theory of strategic mergers

Gennaro Bernile, Evgeny Lyandres, Alexei Zhdanov

Research output: Contribution to journalReview articlepeer-review

25 Scopus citations


We examine firms' strategic incentives to engage in horizontal mergers. In a real options framework, we show that strategic considerations may explain abnormally high takeover activity during periods of positive and negative demand shocks. Importantly, this pattern emerges solely as a result of firms' strategic interaction in output markets. We show that the U-shaped relation between the state of demand and the propensity of firms to merge, documented in past studies, is driven by horizontal mergers in industries that are: (1) relatively more concentrated, (2) characterized by relatively strong competitive interaction among firms, and (3) characterized by relatively low merger-related operating synergies and restructuring costs. The empirical evidence, based on parametric and semi-parametric regression analyses, is consistent with these predictions.

Original languageEnglish (US)
Pages (from-to)517-575
Number of pages59
JournalReview of Finance
Issue number2
StatePublished - Apr 2012

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


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