An Anatomy of Industry Merger Waves*

Abstract

We propose a novel panel Bayesian Markov regime-switching Poisson regression model with time-varying transition probabilities to test existing theories on the driving forces of wave-like patterns in same-industry mergers and acquisitions. We show that the dynamics and persistence of merger waves change substantially in the cross-section of deal flow. This suggests that any inference on existing economically justified competing explanations of merger waves at the aggregate market level could be misleading, as the observed cross-industry heterogeneity in waves is shown to be the consequence of different responses to common or distinct drivers of merger activity.