The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and are there Efficiency Gains?

We analyze the market for firms, divisions, and plants of manufacturing firms using a large sample of plant-level data for the period 1974-92. There is an active market for corporate assets, with over 7 percent of plants transacted through mergers and asset sales in expansion years in the economy. Transactions through partial firm sales represent more than half of these transactions. The probability of asset sales and full firm transactions is related to firm organization and buyer and seller ex ante productivity. We find that these transactions result in ex post productivity increases especially for asset sales from peripheral divisions of selling firms to main divisions of other buyers. Finally we find that productivity increases are significantly higher the more productive the buying firm. This timing of sales and the pattern of productivity gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassic model of profit maximizing by firms. The decision to participate in the market for corporate assets and the subsequent gains realized from transactions are affected both by firm productivity and firm organization.