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Beyond Profitability: Effects Of Acquisitions On Technical Efficiency And Productivity In The Italian Pasta Industry

Unlike traditional studies on the efficiency-enhancing effect of ownership changes – which use either profitability measures or stock prices – this paper measures the effect of acquisitions directly on acquired firms’ technical efficiency. Using a panel of Italian firms in the pasta industry for the 1981-1997 period, I estimate a stochastic production frontier with factors affecting efficiency (i.e. the Battese and Coelli (1995) model), in a translog specification with non-neutral technical progress. The results show that acquired firms’ technical efficiency increases within the six years period following the acquisition, regardless of the nationality of the acquirer, and that a more productive use of resources, in particular labour, is the main source of this increase. However, the analysis beyond the six years period casts some doubts about the persistency of this increase.

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Paper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) in its series CERIS Working Paper with number 199914.

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Length: 34 pages Keywords : Acquisitions, Technical efficiency, Factor Productivity
Date of creation: Dec 1999
Date of revision:
Handle: RePEc:csc:cerisp:199914
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  1. Scott, John T., 1989. "Purposive diversification as a motive for merger," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 35-47, March.
  2. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351.
  3. K Amess, . "Management Buyouts and Firm-Level Performance," SMF Discussion Paper Series 9702, University of Nottingham, School of Management & Finance.
  4. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  5. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110.
  6. Craig Gallet, 1996. "Mergers and market power in the US steel industry," Applied Economics Letters, Taylor & Francis Journals, vol. 3(4), pages 221-223.
  7. Vennet, Rudi Vander, 1996. "The effect of mergers and acquisitions on the efficiency and profitability of EC credit institutions," Journal of Banking & Finance, Elsevier, vol. 20(9), pages 1531-1558, November.
  8. Resti, Andrea, 1998. "Regulation Can Foster Mergers, Can Mergers Foster Efficiency? The Italian Case," Journal of Economics and Business, Elsevier, vol. 50(2), pages 157-169, March.
  9. Eckbo, B Espen & Wier, Peggy, 1985. "Antimerger Policy under the Hart-Scott-Rodino Act: A Reexamination of the Market Power Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 28(1), pages 119-49, April.
  10. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  11. Stavros Peristiani, 1996. "Do mergers improve the x-efficiency and scale efficiency of U.S. banks?: Evidence from the 1980s," Research Paper 9623, Federal Reserve Bank of New York.
  12. Aziz Boussofiane & Stephen Martin & David Parker, 1997. "The impact on technical efficiency of the UK privatization programme," Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 297-310.
  13. Dennis Mueller, 1996. "Antimerger policy in the United States: History and lessons," Empirica, Springer, vol. 23(3), pages 229-253, October.
  14. Giovanni Fraquelli & Fabrizio Erbetta, 1999. "Privatization in Italy: an analysis of factors productivity and technical efficiency," CERIS Working Paper 199905, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  15. Armitage, Seth, 1995. " Event Study Methods and Evidence on Their Performance," Journal of Economic Surveys, Wiley Blackwell, vol. 9(1), pages 25-52, March.
  16. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-52, December.
  17. Mueller, Dennis C, 1969. "A Theory of Conglomerate Mergers," The Quarterly Journal of Economics, MIT Press, vol. 83(4), pages 643-59, November.
  18. Eckbo, B. Espen, 1983. "Horizontal mergers, collusion, and stockholder wealth," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 241-273, April.
  19. repec:cup:cbooks:9780521465618 is not listed on IDEAS
  20. Caves, Richard E., 1989. "Mergers, takeovers, and economic efficiency : Foresight vs. hindsight," International Journal of Industrial Organization, Elsevier, vol. 7(1), pages 151-174, March.
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