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Productivity, Restructuring, And The Gains From Takeovers

  • Xiaoyang Li

This paper investigates how takeovers create value. Using plant-level data, I show that acquirers increase targets’ productivity through more efficient use of capital and labor. Acquirers significantly reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets’investment efficiency through better capital reallocation. Moreover, changes in productivity help explain the merging firms’ announcement returns. The combined announcement returns are driven by improvements in target’s productivity. Targets with greater productivity improvements receive higher premiums. These results provide some first empirical evidence on the relation between productivity and stock returns in the context of takeovers.

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File URL: ftp://ftp2.census.gov/ces/wp/2013/CES-WP-13-18.pdf
File Function: First version, 2013
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 13-18.

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Length: 51 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:cen:wpaper:13-18
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