In this paper I summarize and analyze a broad list of different rationales that have been proposed as motives for mergers and acquisitions. Some of them rely on the theory of industrial organization and refer to enhancement of the market power, efficiency gains and preemptive motives. Some others rely on corporate governance theories and refer to motives such as the correction of internal inefficiencies, agency problems and capital market imperfections. To facilitate our exposition I have classified the list of merger rationales into two main groups. The key distinction between these two groups of merger motives is the effective claimant of the (seeking) merger gains. The first group includes drivers that increase the value of the merging firms because they raise actual or future profits and in which the effective claimants are therefore the owners of the firms, i.e., the shareholders. The second group includes a list of rationales that go in the interest of the manager of the firm and not necessarily in the firm’s value. That is, the rationale in these mergers is to increase the acquiring firm manager’s wealth even if this may result in a decrease of the firm’s value. This distinction is important because making a firm more valued by means of efficiency gains or the exercise of market power implies welfare effects. In contrast, managerial gains should not reflect any welfare effect and should therefore not give rise to any antitrust concern. None of these motives need to be the rational of a merger nor should they be considered as exhaustive.
We also review the different empirical methods that have been proposed to investigate for merger motives and evaluate merger gains and effects. I group them too into three categories according to the different statistical tools and databases they employ. Two of them perform reduced-form analysis of either stock market prices or accounting profits as measures of profitability. The third one performs structural-form analysis of oligopoly models of competition to analyze economic profits. The first two techniques make use of cross sectional and/or panel (cross sectional alongside time) datasets involving several mergers and acquisitions that are not necessarily related among each other. The remaining category makes use of data (cross sectional or panel) concerning the specific merger taking place, that is, the analysis in on a case-by-case basis.
