Hans Schenk

Firms, Managers and Restructuring: Implications of a Social Economics View

This contribution recalls that most mergers undertaken by large firms fail economically and subsequently argues that this is to be expected in an economy that is dominated by the few. This expectation follows if one is prepared to drop maximization-rationality presumptions, and instead adopts a view that allows firms to behave strategically. More in particular, the author argues that firms tend to imitate their peers for a mixture of reasons, especially in order to reduce the risk of falling behind. This phenomenon is able to account for the fact that mergers and acquisitions always appear in waves. After the peak, and because of the high failure rates, many mergers must be broken up again, which is something that currently belongs to the expertise of private equity leveraged buy out firms. This is not without its own problems, however. Rather than accepting the costs of such restructuring carrousels, it is suggested to reintroduce the public purpose standard in merger control so that inefficient mergers will become less normal. ∗ The author is grateful to editor Dolfsma for encouragement and comments on an earlier version.