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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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  • 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. Smith, Clifford Jr., 1986. "Investment banking and the capital acquisition process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 3-29.
  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  3. 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.
  4. 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.
  5. 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.
  6. Mueller, Dennis C, 1969. "A Theory of Conglomerate Mergers," The Quarterly Journal of Economics, MIT Press, vol. 83(4), pages 643-59, November.
  7. Thomas A Abbott Iii, 1989. "Price Dispersion in U.S. Manufacturing," Working Papers 89-7, Center for Economic Studies, U.S. Census Bureau.
  8. 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.).
  9. Martin Neil Baily & Eric J. Bartelsman & John Haltiwanger, 1994. "Downsizing and Productivity Growth: Myth or Reality?," NBER Working Papers 4741, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. Mueller, Dennis C, 1985. "Mergers and Market Share," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 259-67, May.
  13. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
  14. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
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Cited by:
  1. 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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