A new conceptional model for merger waves: Industry competition diffusion based on complex networks

Abstract

The existing two main ways to interpret the formation of merge waves are neo-classical approach and behavior finance approach. Both of these two methods focus on exogenous variables influence, such as the industry shock, shakeout, stock price fluctuation, manager's behaviors and so forth, while they neglect effects of endogenous variables, such as the interactive competition among enterprises and market structure. In this study, the avalanche effect theory of complex network, industry competitive pressure theory and Mergers and Acquisitions (M&A) theory are skillfully combined. It puts forward new ideas that competitive pressures diffusion leads to merger waves. The ideas and theoretical framework is expected to explain the formation process of merger waves from the perspective of industry competition structure. Meanwhile, this method will transfer the research object from individual enterprise to the relationship among enterprises, and find a comprehensive and integrated research framework for the analysis between enterprise-level competitive behavior of individual micro-analysis and industry-level statistical behavior of macro-analysis.