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Post-Merger Restructuring and the Boundaries of the Firm

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Author Info
Vojislav Maksimovic
Gordon Phillips
N. R. Prabhala

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Abstract

Mergers and acquisitions are a fast way for a firm to grow. Using plant-level data, we examine how firms redraw their boundaries after acquisitions. We find that there is a large amount of restructuring in a short period following mergers. Acquirers sell 27% and close 19% of acquired plants within three years of the acquisition. Plants in the target's peripheral divisions, especially in industries in which asset values are increasing, and in industries in which the acquirer does not have a comparative advantage, are more likely to be sold by the acquirer. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Plants retained by acquirers increase in productivity whereas sold plants do not. The extent of post-merger restructuring activities and their cross-sectional variation do not support an empire building explanation for mergers. Acquirers readjust their firm boundaries in ways that are consistent with the exploitation of their comparative advantage across industries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14291.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14291

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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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. Kathleen Fuller & Jeffry Netter & Mike Stegemoller, 2002. "What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions," Journal of Finance, American Finance Association, vol. 57(4), pages 1763-1793, 08. [Downloadable!] (restricted)
  2. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December. [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. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January. [Downloadable!] (restricted)
  5. Matsusaka, John G, 2001. "Corporate Diversification, Value Maximization, and Organizational Capabilities," Journal of Business, University of Chicago Press, vol. 74(3), pages 409-31, July. [Downloadable!] (restricted)
  6. John R. Graham & Michael L. Lemmon & Jack G. Wolf, 2002. "Does Corporate Diversification Destroy Value?," Journal of Finance, American Finance Association, vol. 57(2), pages 695-720, 04. [Downloadable!] (restricted)
  7. 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)
  8. Mitchell, Mark L. & Mulherin, J. Harold, 1996. "The impact of industry shocks on takeover and restructuring activity," Journal of Financial Economics, Elsevier, vol. 41(2), pages 193-229, June. [Downloadable!] (restricted)
  9. Shleifer, Andrei & Vishny, Robert W., 2003. "Stock market driven acquisitions," Journal of Financial Economics, Elsevier, vol. 70(3), pages 295-311, December. [Downloadable!] (restricted)
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  10. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn. [Downloadable!] (restricted)
  11. Matthew Rhodes-Kropf & S. Viswanathan, 2004. "Market Valuation and Merger Waves," Journal of Finance, American Finance Association, vol. 59(6), pages 2685-2718, December. [Downloadable!] (restricted)
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Cited by:
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  1. Van Beers, Cees & Dekker, Ronald, 2009. "Acquisitions, Divestitures and Innovation Performance in the Netherlands," MPRA Paper 13464, University Library of Munich, Germany. [Downloadable!]
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