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The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?

  • Vojislav Maksimovic
  • Gordon Phillips

We examine the effect of financial dependence on the acquisition and investment of single segment and conglomerate firms for different long-run changes in industry conditions. Conglomerates and single-segment firms differ in the investments they make. The main differences are in the investment in acquisitions rather than in the level of capital expenditure. Financial dependence, a deficit in a segment’s internal financing, decreases the likelihood of acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries and also for firms that are publicly traded. In declining industries, plants of segments that are financially dependent are less likely to be closed by conglomerate firms. These findings persist after controlling for firm size and segment productivity. We also find that plants acquired by conglomerate firms in growth industries increase in productivity post-acquisition. The results are consistent with the comparative advantages of different firm organizations differing across long-run industry conditions.

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File URL: ftp://ftp2.census.gov/ces/wp/2005/CES-WP-05-29.pdf
File Function: First version, 2005
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 05-29.

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Length: 44 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:cen:wpaper:05-29
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