Private and Public Merger Waves

We examine the participation of public and private firms in merger waves and productivity outcomes. We show that public firms participate more than private firms as buyers and sellers of assets and their participation is more cyclical. Public firms are affected more by credit spreads and aggregate market valuation. Public firm transactions are also impacted positively by their stock market valuations and liquidity. Public firm acquisitions realize higher gains in productivity, particularly when their transactions occur on-the-wave and when their firms’ stock is liquid and highly valued. We show that our results are not just driven by the fact that public firms have better access to capital. Using productivity data from early in the firm’s life, we find that better private firms subsequently select to become public and that these initial conditions predict higher participation in asset purchases and sales five and more years later.