Working Paper: NBER ID: w12297
Authors: Vojislav Maksimovic; Gordon Phillips
Abstract: We examine the effect of financial dependence on acquisition and investment within existing industries by single-segment and conglomerate firms for industries undergoing different long run changes in industry conditions. Conglomerates and single-segment firms differ more in rates of within-industry acquisitions than in capital expenditure rates, which are similar across organizational type. In particular, 36 percent of within-industry growth by conglomerate firms in growth industries is from intra-industry acquisitions, compared to nine percent for single segment firms. Financial dependence, a deficit in a segment's internal financing, decreases the likelihood of within-industry acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries. The findings persist after controlling for firm size and segment productivity. Acquisitions lead to increased efficiency as plants acquired by conglomerate firms in growth industries increase in productivity post acquisition. The results are consistent with the comparative advantages of different firm organizations differing across long-run industry conditions.
Keywords: No keywords provided
JEL Codes: G0; G2; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| predicted financial dependence (C29) | capital expenditures (G31) |
| predicted financial dependence (C29) | probability of acquisitions (G34) |
| firm organization (L29) | acquisition behavior (G34) |
| acquisitions (G34) | productivity improvements (O49) |
| predicted financial deficit (H68) | probability of opening a new plant (L26) |
| conglomerate firms (L22) | effect of financial dependence on acquisitions (G32) |