Wave Behaviour of Mergers and Acquisitions in the UK: A Sectoral Study
| Date | 01 February 1999 |
| Author | Marcelo Resende |
| Published date | 01 February 1999 |
| DOI | http://doi.org/10.1111/1468-0084.00117 |
WAVE BEHAVIOUR OF MERGERS AND
ACQUISITIONS IN THE UK: A SECTORAL STUDY
Marcelo Resendey
I. INTRODUCTION
The alleged wave pattern of mergers is an old, and still unresolved issue
(see for example Moody (1904), Bain (1944), Stigler (1950), Nelson (1959)
and Scherer and Ross (1990)). In fact, Brealey and Myers (1991, p. 923)
consider this wave behaviour as being among the ten most important
unsolved problems in ®nanical economics. The lack of a uni®ed theory of
mergers makes careful characterization of stylized facts on mergers a
potentially important input for future theoretical efforts. Previous empirical
work has con®ned itself to limited descriptive characterizations of the
stochastic process behind merger data, either by restricting attention to
linear time series models (Melicher et al. (1983), Shugart and Tollison
(1984), Clark et al. (1988)) or by devising limited tests for wave patterns
(Golbe and White (1987, 1993)).
A more promising line of research is the adoption of non-linear time
series models that naturally accommodate the notion of discrete shifts
associated with wave behaviour. Town (1992) pioneered the application of
Hamilton's (1989) Markov switching model in the merger context. It is
interesting to explore this methodology further by considering sectoral data.
Sectoral patterns for mergers and acquisitions (M&A) have not received
much attention in the empirical literature. Resende (1996) explored the time
series properties of sectoral data on M&A for the UK, ®nding a uniformly
low level of persistence to shocks across sectors. Moreover, the results were
consistent with aggregate shocks rather than sector-speci®c shocks. A
further step would be to consider explicitly a non-linear model for investi-
gating wave patterns. It is worth noting that the empirical literature on
mergers displays an interesting parallelism to the empirical studies of
exchange rates: (a) initially studies focused on the `randomness' of mergers
in terms of linear time series models, in particular the random walk
characterization (see Meese and Rogoff (1983) for exchange rates and
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 61, 1 (1999)
0305-9049
85
#Blackwell Publishers Ltd, 1999. Published by Blackwell Publishers, 108 Cowley Road, Oxford
OX4 1JF,UK and 350 Main Street, Malden, MA 02148, USA.
yThe author acknowledges James Hamilton for kindly providing his computer code on the EM
algorithm. Detailed stylistic comments from one of the editors were instrumental in improving the
presentation, but the usual caveats apply.Financial support from CNPq and FAPERJ are gratefully
acknowledged.
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