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The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?

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Author Info
Vojislav Maksimovic
Gordon Phillips

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Abstract

We examine the effect of financial dependence on the acquisition and investment of single segment and conglomerate firms for different long-run changes in industry conditions. Conglomerates and single-segment firms differ in the investments they make. The main differences are in the investment in acquisitions rather than in the level of capital expenditure. Financial dependence, a deficit in a segment’s internal financing, decreases the likelihood of acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries and also for firms that are publicly traded. In declining industries, plants of segments that are financially dependent are less likely to be closed by conglomerate firms. These findings persist after controlling for firm size and segment productivity. We also find that 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.

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File URL: http://www.ces.census.gov/index.php/ces/cespapers?down_key=101739
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 05-29.

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Length: 44 pages
Date of creation: Oct 2005
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Handle: RePEc:cen:wpaper:05-29

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Armando Gomes & Gordon Phillips, 2005. "Why Do Public Firms Issue Private and Public Securities?," NBER Working Papers 11294, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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