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Post-merger restructuring and the boundaries of the firm

Author

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  • Maksimovic, Vojislav
  • Phillips, Gordon
  • Prabhala, N.R.

Abstract

We examine how firms redraw their boundaries after acquisitions using plant-level data. We find that there is extensive restructuring in a short period following mergers and full-firm acquisitions. Acquirers of full firms sell 27% and close 19% of the plants of target firms within three years of the acquisition. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Retained plants increase in productivity whereas sold plants do not. These results suggest that acquirers restructure targets in ways that exploit their comparative advantage.

Suggested Citation

  • Maksimovic, Vojislav & Phillips, Gordon & Prabhala, N.R., 2011. "Post-merger restructuring and the boundaries of the firm," Journal of Financial Economics, Elsevier, vol. 102(2), pages 317-343.
  • Handle: RePEc:eee:jfinec:v:102:y:2011:i:2:p:317-343
    DOI: 10.1016/j.jfineco.2011.05.013
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    More about this item

    Keywords

    Mergers; Acquisitions; Divestitures; Selloffs; Closures; Restructuring; Firm boundaries; Theory of the firm; Post-merger performance; Agency theory;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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