The Granular Role of Mergers and Acquisitions in Aggregate Fluctuations

This study investigates the role of firm-specific productivity shocks from mergers and acquisitions (M&A) in explaining aggregate fluctuations. I isolate these shocks by estimating a covariate-adjusted latent factor model on U.S. public firm data (1978–2023) under an event study approach. M&A activity generates significant short-run fluctuations in firm productivity, typically characterized by an initial decline, a rebound to a higher level, and eventual stabilization. A firm-size-weighted average of these shocks explains roughly one-fifth of variations in U.S. economic growth. This result is robust across multiple empirical validations and is not driven by merger waves or prevailing macroeconomic conditions.