PRODUCTIVITY, RESTRUCTURING, AND THE GAINS FROM TAKEOVERS
April 2013
Working Paper Number:
CES-13-18
Abstract
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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:
investment,
production,
sale,
gain,
takeover,
ownership,
merger,
acquisition,
leverage,
subsidiary,
accounting,
shareholder,
conglomerate,
acquirer,
stock,
security,
share
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:
Annual Survey of Manufactures,
National Science Foundation,
Total Factor Productivity,
Cobb-Douglas,
University of Maryland,
Longitudinal Business Database,
Center for Research in Security Prices,
Securities Data Company,
Census of Manufacturing Firms,
University of Michigan,
International Trade Research Report,
Center for Administrative Records Research
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