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

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  • Vojislav Maksimovic
  • Gordon Phillips

Abstract

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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  • Vojislav Maksimovic & Gordon Phillips, 2006. "The Industry Life Cycle and Acquisitions and Investment: Does Firm Organization Matter?," NBER Working Papers 12297, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12297
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    Cited by:

    1. Boutin, Xavier & Cestone, Giacinta & Fumagalli, Chiara & Pica, Giovanni & Serrano-Velarde, Nicolas, 2013. "The deep-pocket effect of internal capital markets," Journal of Financial Economics, Elsevier, vol. 109(1), pages 122-145.
    2. Lily Qiu & Gerard Hoberg, 2005. "Future Industrial Organization and Stock Returns versus the Decision to Issue IPOs," Working Papers 2005-06, Brown University, Department of Economics.
    3. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    4. Armando Gomes & Gordon Phillips, 2005. "Why Do Public Firms Issue Private and Public Securities?," NBER Working Papers 11294, National Bureau of Economic Research, Inc.
    5. Giacomo Rodano & Emanuele Tarantino & Nicolas Serrano-Velarde, 2012. "Bankruptcy Law and the Cost of Banking Finance," Working Papers 1218, Oxford University Centre for Business Taxation.
    6. Lin, Chen & Su, Dongwei, 2008. "Industrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in China," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 405-417, September.

    More about this item

    JEL classification:

    • G0 - Financial Economics - - General
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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