Question

Please describe how mergers cluster in time to form merger waves. In addition, describe at least two real economic causes behind merger waves.

Answer 1

Mergers is an agreement between two or more existing entities to combine and form a single entity.It is basically done to expand the business, to put different senergy together, also to gain the market share and so on.

Mergers cluster in time to form merger waves because stock market valuations drive merger activity or industry shocks accompanying economic expansions drive merger activity.Merger activity is much greater during economic expansions than during contractions and that merger activity strongly correlates with bull markets.Market timing variables have little explanatory power relative to an economic model including this liquidity component.The contemporaneous peak in divisional acquisitions for cash also suggest an economic motivation for the merger activity.Example of merger wave- during 1897-1907 J.P. Morgon merged US Steel with carnegie it created monopoly and lead to merger wave.

Real economic causes behind merger waves are as follows:

• According to various study and research these waves are caused because of change in environment,policy ,competition and innovation in the market.
• The seconf cause is the regulatory shock ,it can occur through the elimination of regulatory barriers that might have prevented corporate combinations.
• The other cause may be the technological shock as it brings dramatic shifts in the existing industry.