Graduate School of Economics and Management, Tohoku University

Each successfully completed M&A transaction generates lucrative income opportunities to specific parties involved in deal-making due to compensation mechanisms linked to the transaction value. In theory, this transactional channel of M&A activity might relate to income inequality. The main objective of this study is to provide the first empirical analysis on the relationship between M&A and income shares at the very top of the income distribution. Using an unbalanced panel design with country-year observations from 46 countries allows exploiting cross-sectional along with temporal variation. Methodologically, the Driscoll and Kraay estimator is applied as it is heteroskedasticity-consistent and robust to nonparametric forms of serial and cross-sectional dependence. This study finds statistical evidence for a positive and non-linear association pattern between changes in M&A activity and changes in top income shares, indicating pro-rich effects. Additionally, periods of systematic banking crises significantly intensify the relationship between M&A activity and increasing income concentration.