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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

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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Bibliographic Info

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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Keywords: CES; economic; research; micro; data; microdata; chief; economist;

References

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  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.
  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.
  3. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  4. 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.
  5. 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.).
  6. 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.
  7. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-67, May.
  8. 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.
  9. Eric J. Bartelsman & Phoebus J. Dhrymes, 1994. "Productivity dynamics: U.S. manufacturing plants, 1972-1986," Finance and Economics Discussion Series 94-1, Board of Governors of the Federal Reserve System (U.S.).
  10. 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.
  11. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  12. 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.
  13. Mueller, Dennis C, 1969. "A Theory of Conglomerate Mergers," The Quarterly Journal of Economics, MIT Press, vol. 83(4), pages 643-59, November.
  14. 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.
  15. 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.
  16. Thomas A Abbott Iii, 1989. "Price Dispersion in U.S. Manufacturing," Working Papers 89-7, Center for Economic Studies, U.S. Census Bureau.
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Cited by:
  1. Michael D. Giandrea, 2006. "Industry Competition and Total Factor Productivity Growth," Working Papers 399, U.S. Bureau of Labor Statistics.
  2. Sang V. Nguyen & Michael Ollinger, 2009. "Mergers and acquisitions, employment, wages, and plant closures in the U.S. meat product industries," Agribusiness, John Wiley & Sons, Ltd., vol. 25(1), pages 70-89.

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