Banking

Journal of Applied Economics and Business Research

JAEBR, 1(3): 120-129 (2011)

Growth Effects of Mergers and Acquisitions: A Sector-level Study

of OECD countries

Nadia Doytch1, Esin Cakan

Faculty of Economics, University of New Haven, USA

The purpose of the paper is to analyze the impact of mergers and acquisitions (M&A) sales on economic

growth. The analysis is conducted by sectors: primary, manufacturing and services. M&A sales are

disaggregated by sectors and also into domestic and cross-border M&A sales. The group of the OECD

countries is examined. After applying a Generalized Method of Moments (GMM) estimator, which controls for

endogeneity of M&A, we find no support of the hypothesis that M&A activity contributes to economic growth,

except for growth of the services sector. Both, financial and non -financial domestic services M&A, have a

positive effect on services growth. Primary sector and manufacturing M&A have negative effects on their own

sectors growth rates. At the aggregate economic level, the impact of M&A on growth is also negative.

Copyright © 2011 JAEBR

Keywords: Sectoral Mergers and Acquisitions Sales, Sectoral and Aggregate Growth, Generalized Method of

Moments

1. Introduction

What are the implications of mergers and acquisitions (M&A) for growth? Neoclassical

theory is primarily concerned with why M&A occur and views them either as responses to

industry shocks, such as new regulation, technologies, liquidity constraints, or competition

(Gort, 1969; Mitchell and Mulherin, 1996; Andrade et al., 2001; Sudarsanam, 2003; Andrade

and Stafford, 2004; Weston et al., 2004; and Harford, 2005) or as responses to industry life

cycles- growth, maturity, decline (Coase 1937; Nelson 1959; and Harford 2005). The

implications of M&A for economic growth, however, are left out of this literature.

A second literature stream examines the international aspects of M&A. The last wave

of M&A activity is a global one. It is primarily...