Keywords: corporation, firm size, merger, corporate control, takeover, investment incentives
Why large size adds to value: a comment on Dennis Mueller's paper
Dennis Mueller's paper raises a puzzle. Economies of scale and market power do not explain the very large size of firms in the oil and gas industry. At the same time, managers of large cash-rich firms are tempted to invest in substandard projects and firms, e.g. via mergers. This should spell doom for very large firms. But, in reality, large firms seem to have value. In this comment, it is suggested that very large firms may hold the potential to operate an internal market for corporate control better than 'the market'. This would fit with the recent literature on stylised facts about firm size distribution. Still, the value of large size, and mega-mergers, depends on how well it is used.