Working Paper: NBER ID: w14291
Authors: Vojislav Maksimovic; Gordon Phillips; N R Prabhala
Abstract: Mergers and acquisitions are a fast way for a firm to grow. Using plant-level data, we examine how firms redraw their boundaries after acquisitions. We find that there is a large amount of restructuring in a short period following mergers. Acquirers sell 27% and close 19% of acquired plants within three years of the acquisition. Plants in the target's peripheral divisions, especially in industries in which asset values are increasing, and in industries in which the acquirer does not have a comparative advantage, are more likely to be sold by the acquirer. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Plants retained by acquirers increase in productivity whereas sold plants do not. The extent of post-merger restructuring activities and their cross-sectional variation do not support an empire building explanation for mergers. Acquirers readjust their firm boundaries in ways that are consistent with the exploitation of their comparative advantage across industries.
Keywords: mergers; acquisitions; postmerger restructuring; firm boundaries
JEL Codes: G3; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| acquirers' comparative advantage (F12) | decisions regarding retention, sale, or closure of acquired plants (L14) |
| characteristics of the plants (Q23) | decisions regarding retention, sale, or closure of acquired plants (L14) |
| retained plants (Q24) | significant productivity increases (O49) |
| sold plants (Q15) | no significant productivity improvements (O49) |
| one standard deviation increase in productivity of acquirers' marginal plants (O49) | increases the probability of retaining acquired plants (Q24) |
| positive shocks in industries (L16) | increases the probability of retaining acquired plants (Q24) |
| method of payment (stock vs. cash) (J33) | postmerger restructuring decisions (G34) |
| acquirers' capabilities (G34) | retention of assets (D14) |
| acquirers' capabilities (G34) | divestment of non-complementary assets (G32) |