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Mergers, Firm Size, and Volatility in a Granular Economy

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  • J. M. L. Chan
  • H. Qi

    (Audencia Business School)

Abstract

We study the firm dynamics associated with mergers and acquisitions (M&A) and their implications at the micro and macro levels. Our paper presents three main findings: (i) mergers generate a more fat-tailed firm-size distribution, thereby amplifying granular fluctuations and increasing aggregate volatility; (ii) the impact of mergers depends on strategic market power and endogenous markups; and (iii) under endogenous markups, we provide a novel characterization of the firm size-volatility relationship in which volatility declines disproportionately with size. We build a quantitative model of domestic horizontal mergers and find a sizeable impact of mergers on aggregate volatility using counterfactual analysis.

Suggested Citation

  • J. M. L. Chan & H. Qi, 2025. "Mergers, Firm Size, and Volatility in a Granular Economy," Post-Print hal-04719146, HAL.
    • Handle: RePEc:hal:journl:hal-04719146
    DOI: 10.1016/j.red.2024.101254
    Note: View the original document on HAL open archive server: https://hal.science/hal-04719146v2
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    Keywords

    firm-size distribution; mergers and acquisitions; granularity; size-volatility relationship; variable markups;
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