The role of risk management in mergers and merger waves

Jon A. Garfinkel, Kristine Watson Hankins

Research output: Contribution to journalArticlepeer-review

55 Scopus citations


We show that merger activity and particularly waves are significantly driven by risk management considerations. Increases in cash flow uncertainty encourage firms to vertically integrate and this contributes to the start of merger waves. These effects are incremental to previously identified causes of wave activity. Our risk management hypothesis is further supported by cross-sectional differences in the likelihood that a firm vertically integrates, and by the post-acquisition characteristics of vertically integrating firms. These results are consistent with the view (from the industrial organization literature) that vertical integration is an operational hedging mechanism that reduces the cost of increased uncertainty.

Original languageEnglish
Pages (from-to)515-532
Number of pages18
JournalJournal of Financial Economics
Issue number3
StatePublished - Sep 2011


  • Merger waves
  • Risk management
  • Vertical integration

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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