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Firm Performance after Ownership Change: A Matching Estimator Approach

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  • Christian Bellak
  • Michael Pfaffermayr
  • Michael Wild

Abstract

Based on balance sheet data of a sample of Austrian manufacturing firms, this paper examines the causal effect of foreign takeovers on the performance (productivity and profitability) and the growth rate of Austrian target firms. Thereby, we consider two hypotheses that an acquired underperforming firm (“lemon”) improves its performance post takeover versus the “cherry picking” (overperformers) view. The latter suggests endogeneity of takeover decisions. Consequently we follow a difference-in-difference approach with endogenous selection using the matching estimator technique. The probit selection model suggests that in general, the risk of being taken over is very low, and that the possibility to improve the market power (indicated by below average profitability) and intangible assets (indicated by above average productivity and export orientation) explain the takeover decision. Our results suggest that in general the effects are small, but post-takeover growth of profitability tends to be significantly higher for “lemons” than for “cherries”. Employment and productivity growth are not significantly affected, independent of the pre-takeover performance and the matching estimator used. Lemons reduce the productivity gap vis-à-vis cherries 4 years after the takeover by 13 percentage points.

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Bibliographic Info

Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 52 (2006)
Issue (Month): 1 ()
Pages: 29-54

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Handle: RePEc:aeq:aeqaeq:v52_y2006_i1_q1_p29-54

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Related research

Keywords: Foreign ownership; direct investment; takeover; difference-in-difference estimators; matching estimators;

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Cited by:
  1. John Weche Gelübcke, 2013. "The performance of foreign affiliates in German manufacturing: evidence from a new database," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(1), pages 151-182, March.
  2. Wagner, Joachim & Gelübcke, John P. Weche, 2013. "Credit Constraints, Foreign Ownership, and Foreign Takeovers in Germany," Working Paper Series in Economics and Institutions of Innovation 329, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  3. Antonios Georgopoulos & George Argyros & Giota Boura, 2008. "Which Targets Stimulate Cross-border Acquisitions? An Empirical Investigation of Industrial Organization and Trade Factors within a Competition Framework of International and Domestic Acquisition Targ," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 55-72, March.
  4. Andreas Koch & Elena Biewen, 2012. "Are Firms in Business Groups More Productive? An empirical analysis based on German micro-level data with a special emphasis on the roles of regional and sectoral diversity," ERSA conference papers ersa12p795, European Regional Science Association.
  5. Lehto, Eero & Böckerman, Petri, 2008. "Analysing the employment effects of mergers and acquisitions," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 112-124, October.
  6. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: Cherry-picking and Lemon-grabbing," Working Paper Series in Economics 240, University of Lüneburg, Institute of Economics.
  7. Christian Arndt & Anselm Mattes, 2010. "Cross-Border Mergers and Acquisitions of Multinational Firms. New Firm-Level Evidence," IAW Discussion Papers 62, Institut für Angewandte Wirtschaftsforschung (IAW).
  8. John P. Weche Geluebcke, 2012. "Foreign and Domestic Takeovers in Germany: First Comparative Evidence on the Post-acquisition Target Performance using new Data," Working Paper Series in Economics 249, University of Lüneburg, Institute of Economics.
  9. Georgopoulos, Antonios & Preusse, Heinz Gert, 2009. "Cross-border acquisitions vs. Greenfield investment: A comparative performance analysis in Greece," International Business Review, Elsevier, vol. 18(6), pages 592-605, December.

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