The Fundamental Drivers of Merger Waves - A study of industry level merger activity in the Nordic market

Abstract: We examine if merger waves occur on an industry level in the Nordics, and the underlying drivers of these waves. We conduct simulations of the empirical distribution of merger activity, univariate tests and regressions of logit models to address this research question. Further, we propose the use of an index, based on principal component analysis of key operating performance measures, to capture economic shocks. Our findings suggest the existence of a complex relationship between merger waves and economic shocks, capital liquidity constraints and stock market booms. In conclusion, we find evidence for the neoclassical theory of merger waves, indicating economic shocks are the fundamental drivers of merger waves on an industry level in the Nordics. Using the implications from our study, firms can reposition themselves in anticipation of demand shocks to take full advantage of periods with intense merger activity.