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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 acquisition and investment within existing industries by single-segment and conglomerate firms for industries undergoing different long run changes in industry conditions. Conglomerates and single-segment firms differ more in rates of within-industry acquisitions than in capital expenditure rates, which are similar across organizational type. In particular, 36 percent of within-industry growth by conglomerate firms in growth industries is from intra-industry acquisitions, compared to nine percent for single segment firms. Financial dependence, a deficit in a segment%u2019s internal financing, decreases the likelihood of within-industry acquisitions and opening new plants, especially for single-segment firms. These effects are mitigated for conglomerates in growth industries. The findings persist after controlling for firm size and segment productivity. Acquisitions lead to increased efficiency as 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12297.

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Date of creation: Jun 2006
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Publication status: published as Maksimovic, Vojislav and Gordon Phillips. “The Industry Life-Cycle, Acquisitions and Investment: Does Firm Organization Matter?” Journal of Finance 63 (April 2008): 629-64.
Handle: RePEc:nbr:nberwo:12297
Note: CF IO
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