Mergers and Excess Deposits: Some Evidence for the UK

In this paper we consider an argument, often used in the City and the press, that mergers take place more because of the availability of finance than for strong economic reasons. In particular, we focus on the availability of finance part of this argument and suggest that the financial sector and firms themselves use excess funds to support merger activity. Using data for the UK, we show that there is evidence for such an effect for non-bank financial institutions but results for firms are not significant. Possible interpretations of this result are also discussed.