Papers Containing Tag(s): 'Securities Data Company'
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Authors
Thomas Chemmanur - 5
Debarshi Nandy - 3
Viewing papers 11 through 13 of 13
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Working PaperEfficiency Implications of Corporate Diversification: Evidence from Micro Data
November 2006
Working Paper Number:
CES-06-26
In this study, we contribute to the ongoing research on the rationales for corporate diversification. Using plant-level data from the U.S. Census Bureau, we examine whether combining several lines of business in one entity leads to increased productive efficiency. Studying the direct effect of diversification on efficiency allows us to discern between two major theories of corporate diversification: the synergy hypothesis and the agency cost hypothesis. To measure productive efficiency, we employ a non-parametric approach'a test based on Varian's Weak Axiom of Profit Maximization (WAPM). This method has several advantages over other conventional measures of productive efficiency. Most importantly, it allows one to perform the efficiency test without relying on assumptions about the functional form of the underlying production function. To the best of our knowledge, this study is the first application of the WAPM test to a large sample of non-financial firms. The study provides evidence that business segments of diversified firms are more efficient compared to single-segment firms in the same industry. This finding suggests that the existence of the so-called 'diversification discount' cannot be explained by efficiency differences between multi-segment and focused firms. Furthermore, more efficient segments tend to be vertically integrated with others segments in the same firm and to have been added through acquisitions rather than grown internally. Overall, the results of this study indicate that corporate diversification is value-enhancing, and that it is not necessarily driven by managers' pursuit of their private benefits.View Full Paper PDF
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Working PaperHow is Value Created in Spin-Offs? A Look Inside the Black Box
July 2005
Working Paper Number:
CES-05-09
Using a unique sample of plant level data from the Longitudinal Research Database (LRD), we identify (for the first time in the literature), how (the precise channel and mechanism), where (parent or subsidiary), and when (the dynamic pattern) performance improvements arise following corporate spinoffs. We identify the source of value improvements in spin-offs by comparing the magnitude of post-spinoff changes in the wages, employment, materials costs, rental and administrative expenses, sales, and capital expenditures in the plants belonging to firms undergoing spin-offs relative to the magnitude of such changes in a control group of plants belonging to firms not undergoing spin-offs. We show that the total factor productivity (TFP) of plants belonging to spin-off firms (parent or spun-off subsidiary) increase, on average, following the spin-off. This increase in overall productivity begins immediately, starting with the first year following the spin-off, and continuing in the years thereafter. This performance improvement can be attributed to a decrease in workers' wages, employment at the plant, decrease in the cost of materials purchased, as well as a decrease in rental and office expenditures, but not from improved product market performance by these plants. Further, such productivity improvements arise primarily in plants that remain with the parent; plants belonging to the spun-off subsidiary do not experience such productivity increases. However, contrary to speculation in the previous literature, plants that are spun-off do not underperform parent plants prior to the spin-off. Finally, in our split-sample study of plants that were acquired subsequent to the spin-off and those that were not, we find that productivity increases for both groups of plants: while such productivity increases start immediately after the spin-off for the nonacquired plants, for the acquired plants they occur only after being taken over by a better management team.View Full Paper PDF
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Working PaperCapital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions
March 1995
Working Paper Number:
CES-95-04
This paper examines whether capital structure decisions interact with product market characteristics to influence plant closing and investment decisions. The empirical evidence in this paper shows that a firm's capital structure, plant level efficiency, and industry capacity utilization are significant determinants of plant (dis)investment decisions. We find that the effects of high leverage on investment and plant closing are significant when the industry is highly concentrated. Following their recapitalizations, firms in industries with high concentration are more likely to close plants and less likely to invest. In addition, we find that rival firms are less likely to close plants and more likely to invest when the market share of leveraged firms is higher.View Full Paper PDF
