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Exploring The Role Of Acquisition In The Performance Of Firms: Is The "Firm" The Right Unit Of Analysis?

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Author Info
Sang V Nguyen
Robert H Mcguckin

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Abstract

In this article, we examine the effect of acquisitions on productivity performance of acquiring firms using the conventional regression analysis and a method of productivity decomposition. Our empirical work uses both plant- and firm-level data taken from the Longitudinal Research Database (LRD) on the entire population of U.S. food manufacturing firms that operated continuously during 1977-87. We find that (1) acquisitions had a significant, positive effect on acquiring firms' productivity growth, but this effect becomes insignificant when only firm-level data on multi-unit firms are included in the regressions; and (2) the decomposition results show that while the productivity contribution of the external component (acquired plants) is positive, the contribution of the internal component (existing plants) is negative; the two components offset each other leaving productivity of multi-unit acquiring firms virtually unchanged after acquisitions. These results suggest that assessing the impact of acquisitions on the structure and performance of firms requires a careful look at the individual components (i.e., plants) of the firms, particularly for large multi-unit firms.

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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 95-13.

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Date of creation: Nov 1995
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Handle: RePEc:cen:wpaper:95-13

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Web page: http://www.ces.census.gov

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Keywords: CES economic research micro data microdata chief economist

References listed on IDEAS
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. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  2. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April. [Downloadable!] (restricted)
  3. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April. [Downloadable!] (restricted)
  4. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring. [Downloadable!] (restricted)
  6. Mueller, Dennis C, 1969. "A Theory of Conglomerate Mergers," The Quarterly Journal of Economics, MIT Press, vol. 83(4), pages 643-59, November. [Downloadable!] (restricted)
  7. Martin N. Baily & Eric J. Bartelsman & John Haltiwanger, 1994. "Downsizing and productivity growth: myth or reality?," Finance and Economics Discussion Series 94-7, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  8. Shleifer, Andrei & Vishny, Robert W., 1989. "Management entrenchment : The case of manager-specific investments," Journal of Financial Economics, Elsevier, vol. 25(1), pages 123-139, November. [Downloadable!] (restricted)
  9. Smith, Abbie J., 1990. "Corporate ownership structure and performance *1: The case of management buyouts," Journal of Financial Economics, Elsevier, vol. 27(1), pages 143-164, September. [Downloadable!] (restricted)
  10. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-67, May. [Downloadable!] (restricted)
  11. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  12. David J Ravenscraft & William F Long, 1993. "The Financial Performance of Whole Company LBOs," Working Papers 93-16, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  13. Thomas A Abbott Iii, 1989. "Price Dispersion in U.S. Manufacturing," Working Papers 89-7, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  14. John G. Matsusaka, 1993. "Takeover Motives during the Conglomerate Merger Wave," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 357-379, Autumn. [Downloadable!] (restricted)
    Other versions:
  15. Phoebus Dhrymes & Eric Bartelsman, 1992. "Productivity Dynamics: U.S. Manufacturing Plants, 1972-1986," Working Papers 92-1, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
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Cited by:
(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. Michael D. Giandrea, 2006. "Industry Competition and Total Factor Productivity Growth," Working Papers 399, U.S. Bureau of Labor Statistics. [Downloadable!]
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