The Importance of Industry Links in Merger Waves
RCB 1200 – from 2:00 – 3:30
Prior research ﬁnds that economic shocks lead to merger waves within an industry. However, industries do not exist in isolation. In this paper, we argue that both intra- and inter-industry merger waves are driven by customer-supplier relations between industries. To test our theory, we construct an industry network using techniques from the social-networking literature, where inter-industry connections are determined by the strength of supplier and customer relations. First, we ﬁnd that the strength of industry network ties strongly predicts inter-industry merger activity in the cross-section. Second, we show that merger waves propagate across the industry network over time: high levels of merger activity in an industry lead to subsequently high levels of activity in connected industries. By using a network approach, we provide new insight into understanding why mergers occur in waves.