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A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy

Kaya, Mehmet Caglar LU and Persson, Lars LU (2019) In North American Journal of Economics and Finance 50.
Abstract

This paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are... (More)

This paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are reduced.

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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
North American Journal of Economics and Finance
volume
50
article number
101019
publisher
Elsevier
external identifiers
  • scopus:85069581562
ISSN
1062-9408
DOI
10.1016/j.najef.2019.101019
language
English
LU publication?
yes
id
7d352b93-73e2-46a3-9bdc-4f542af368f4
date added to LUP
2019-08-02 11:27:24
date last changed
2020-01-27 14:24:08
@article{7d352b93-73e2-46a3-9bdc-4f542af368f4,
  abstract     = {<p>This paper proposes a theory of gazelle growth in which gazelles can grow either organically or through acquisitions. The model includes three types of firms: incumbent, target, and gazelle. We show that the lower cost of organic growth can increase the incentives for acquisition growth because the incumbent understands that if it acquires the target firm, the gazelle will then invest organically in order to grow, and therefore, the acquisition will not be enough to protect the incumbent's market power. The gazelle could then acquire the target firm at a good price. We also show that financial support for the organic growth of gazelles can increase gazelles’ growth through acquisitions because incumbents’ preemptive motives are reduced.</p>},
  author       = {Kaya, Mehmet Caglar and Persson, Lars},
  issn         = {1062-9408},
  language     = {eng},
  publisher    = {Elsevier},
  series       = {North American Journal of Economics and Finance},
  title        = {A Theory of Gazelle Growth: Competition, Venture Capital Finance, and Policy},
  url          = {http://dx.doi.org/10.1016/j.najef.2019.101019},
  doi          = {10.1016/j.najef.2019.101019},
  volume       = {50},
  year         = {2019},
}