Using annual data on mergers for 35 leading German companies from 1870 to 1913, my study tries to explain the first merger wave that emerged 1898. My panel probit model that accounted for economies of scale, macroeconomic conditions, success of former mergers, and market structure revealed that previous mergers made subsequent mergers more likely. The propensity to merge was higher for larger companies that increased their market power. In the banking industry, managers imitated mergers, although these mergers were not successful, and hence followed the minimax regret principle. Rational information-based herding caused the serial dependency of mergers in other industries.
My paper was presented at the ASSA meeting 2005, and I received many interesting comments from participants and my discussant Daniel Raff. Moreover, I thank Markus Baltzer, Joerg Baten, Jaap Bos, Aravinda Meera Guntupalli, and Clemens Kool for their useful comments. Stephan Broadberry deserves special thanks for his question aiming at the long-term impact of mergers, raised during my presentation at the Fifth European Historical Economics Society Conference 2003, which initiated this research. My paper was significantly improved by following the comments of an anonymous referee. Hence, I wish to thank her or him for these suggestions.
- Pre-World War I
- merger wave
- Minimax regret
- Herd behavior