A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES
This paper aims to identify and critically evaluate the theoretical explanations of mergers happening in clusters. We identified two streams of theories: neoclassical and behavioural explanations of merger waves. Neoclassical theories include q theory and industry shock hypothesis. Behavioural th...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
“Victor Slăvescu” Centre for Financial and Monetary Research
2022-03-01
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| Series: | Financial Studies |
| Subjects: | |
| Online Access: | http://fs.icfm.ro/Paper01.FS1.2022.pdf |
| _version_ | 1797869586759024640 |
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| author | Atiqur RAHMAN Lauren USHER |
| author_facet | Atiqur RAHMAN Lauren USHER |
| author_sort | Atiqur RAHMAN |
| collection | DOAJ |
| description | This paper aims to identify and critically evaluate the theoretical
explanations of mergers happening in clusters. We identified two
streams of theories: neoclassical and behavioural explanations of
merger waves. Neoclassical theories include q theory and industry shock hypothesis. Behavioural theories studied incorporate share misvaluation theory, managerial hubris hypothesis, and managerial discretion theory. Q theory states that efficient firms take over inefficient firms during market expansions. Industry shock hypothesis views resource reallocation requirements due to economic, technological, or regulatory shocks as causes of merger waves.
Neoclassical theories, hypothesizing gain from mergers, assumes that markets are efficient, and managers maximize shareholder wealth.
Share mis-valuation theory suggests that mergers waves occur when managers of overvalued firms use overvalued stocks to takeover undervalued targets in inefficient markets. Managerial hubris hypothesis, assuming of strong market efficiency, attributes merger waves to overconfidence of irrational managers about estimated gain from acquisition. Managerial discretion theory, more relevant for conglomerate merger, attributes merger waves as results of managerial empire building. We conclude that both the streams of theories should co-exist unless a new theory incorporating the strengths of the two has emerged. |
| first_indexed | 2024-04-10T00:13:53Z |
| format | Article |
| id | doaj.art-f236893bfd244ff1bf2ae6a53029d271 |
| institution | Directory Open Access Journal |
| issn | 2066-6071 |
| language | English |
| last_indexed | 2024-04-10T00:13:53Z |
| publishDate | 2022-03-01 |
| publisher | “Victor Slăvescu” Centre for Financial and Monetary Research |
| record_format | Article |
| series | Financial Studies |
| spelling | doaj.art-f236893bfd244ff1bf2ae6a53029d2712023-03-16T06:51:55Zeng“Victor Slăvescu” Centre for Financial and Monetary ResearchFinancial Studies2066-60712022-03-01261623A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVESAtiqur RAHMAN0Lauren USHER1Assistant Professor, Department of Accounting and Information Systems, Jahangirnagar University, Savar, BangladeshGraduate Student, Strathclyde Business School, University of Strathclyde, Glasgow, United KingdomThis paper aims to identify and critically evaluate the theoretical explanations of mergers happening in clusters. We identified two streams of theories: neoclassical and behavioural explanations of merger waves. Neoclassical theories include q theory and industry shock hypothesis. Behavioural theories studied incorporate share misvaluation theory, managerial hubris hypothesis, and managerial discretion theory. Q theory states that efficient firms take over inefficient firms during market expansions. Industry shock hypothesis views resource reallocation requirements due to economic, technological, or regulatory shocks as causes of merger waves. Neoclassical theories, hypothesizing gain from mergers, assumes that markets are efficient, and managers maximize shareholder wealth. Share mis-valuation theory suggests that mergers waves occur when managers of overvalued firms use overvalued stocks to takeover undervalued targets in inefficient markets. Managerial hubris hypothesis, assuming of strong market efficiency, attributes merger waves to overconfidence of irrational managers about estimated gain from acquisition. Managerial discretion theory, more relevant for conglomerate merger, attributes merger waves as results of managerial empire building. We conclude that both the streams of theories should co-exist unless a new theory incorporating the strengths of the two has emerged.http://fs.icfm.ro/Paper01.FS1.2022.pdfmergers and acquisitionsrestructuringeconomic theories of financebehavioural finance theories |
| spellingShingle | Atiqur RAHMAN Lauren USHER A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES Financial Studies mergers and acquisitions restructuring economic theories of finance behavioural finance theories |
| title | A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES |
| title_full | A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES |
| title_fullStr | A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES |
| title_full_unstemmed | A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES |
| title_short | A CRITICAL REVIEW OF NEOCLASSICAL AND BEHAVIOURAL THEORIES OF MERGER WAVES |
| title_sort | critical review of neoclassical and behavioural theories of merger waves |
| topic | mergers and acquisitions restructuring economic theories of finance behavioural finance theories |
| url | http://fs.icfm.ro/Paper01.FS1.2022.pdf |
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