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Does Corporate Performance Improve After Mergers?

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  • 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.

Suggested Citation

  • Paul M. Healy & Krishna G. Palepu & Richard C. Rubak, 1990. "Does Corporate Performance Improve After Mergers?," NBER Working Papers 3348, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3348
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    Cited by:

    1. Chang, Shao-Chi & Chen, Sheng-Syan & Lai, Jung-Ho, 2008. "The effect of alliance experience and intellectual capital on the value creation of international strategic alliances," Omega, Elsevier, vol. 36(2), pages 298-316, April.
    2. Yang Zhang, 2018. "Corporate Governance Effects on Risk Management and Shareholder Wealth: The Case of Mergers and Acquisitions," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4-2018.
    3. 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.
    4. Aharon, David Y. & Gavious, Ilanit & Yosef, Rami, 2010. "Stock market bubble effects on mergers and acquisitions," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 456-470, November.
    5. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics.
    6. Bing Zhou & Meng Peng & Yingxue Tan & Sidai Guo & Shengzhong Huang & Bing Xue, 2019. "Dynamic Panel Threshold Model-Based Analysis on Equity Restriction and Enterprise Performance in China," Sustainability, MDPI, vol. 11(22), pages 1-20, November.

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