The Q-Theory of Mergers
The Q-theory of investment says that a firm's investment rate should rise with its Q (the ratio of market value to the replacement cost of capital). It is argued that this theory also explains why some firms buy other firms. It is found that: 1. A firm's merger and acquisition investment r...
Saved in:
Published in: | The American economic review 2002-05, Vol.92 (2), p.198-204 |
---|---|
Main Authors: | , |
Format: | Article |
Language: | eng |
Subjects: | |
Online Access: | Get full text |
Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
Summary: | The Q-theory of investment says that a firm's investment rate should rise with its Q (the ratio of market value to the replacement cost of capital). It is argued that this theory also explains why some firms buy other firms. It is found that: 1. A firm's merger and acquisition investment response to its Q more than its direct investment does, probably because merger and acquisition investment is a high fixed cost and a low marginal adjustment cost activity. 2. The typical firm wastes some cash on mergers and acquisitions, and not on internal investment. 3. The merger waves of 1900 and the 1920's, 1980 and 1990s were a response to profitable reallocation opportunities, but the 1960s' wave was probably caused by something else. |
---|---|
ISSN: | 0002-8282 1944-7981 |