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Does Corporate Performance Improve After Mergers?

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Author Info
Paul M. Healy
Krishna G. Palepu
Richard C. Rubak
Abstract

We examine the post-acquisition operating performance of merged firms using a sample of the 50 largest mergers between U.S. public industrial firms completed in the period 1979 to 1983. The results indicate that merged firms have significant improvement in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns. Sample firms maintain their capital expenditure and R&D rates relative to their industries after the merger, indicating that merged firms do not reduce their long-term investments. There is a strong positive relation between postmerger increases in operating cash flows and abnormal stock returns at merger announcements, indicating that expectations of economic improvements underlie the equity revaluations of the merging firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3348.

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Date of creation: May 1990
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Handle: RePEc:nbr:nberwo:3348

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  1. Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May. [Downloadable!] (restricted)
  2. Bradley, Michael & Desai, Anand & Kim, E. Han, 1983. "The rationale behind interfirm tender offers : Information or synergy?," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 183-206, April. [Downloadable!] (restricted)
  3. Andrei Shleifer & Lawrence H. Summers, 1989. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Asquith, K Paul & Kim, E Han, 1982. " The Impact of Merger Bids on the Participating Firms' Security Holders," Journal of Finance, American Finance Association, vol. 37(5), pages 1209-28, December. [Downloadable!] (restricted)
  5. 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)
  6. Dodd, Peter & Ruback, Richard, 1977. "Tender offers and stockholder returns : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 5(3), pages 351-373, December. [Downloadable!] (restricted)
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  1. Sang V Nguyen, 1998. "The Manufacturing Plant Ownership Change Database: Its Construction And Usefulness," Working Papers 98-16, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  2. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics. [Downloadable!]
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