Post-Merger Restructuring and the Boundaries of the Firm
University of Maryland - Robert H. Smith School of Business
Gordon M. Phillips
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
University of Maryland - Robert H. Smith School of Business; CAFRAL
March 18, 2008
AFA 2009 San Francisco Meetings Paper
Mergers and acquisitions are a fast way for a firm to acquire assets. Using plant-level data, we examine how firms redraw their boundaries after acquisitions. We find that there is a surprisingly substantial amount of restructuring in a short period after mergers are consummated. Acquirers sell 27% and close 19% of acquired plants within three years after completing an acquisition. Plants that belong to the target's peripheral
divisions, especially in industries in which asset values are increasing and in industries in which the acquirer does not have a comparative advantage, are more likely to be sold by the purchasing firm. Acquirers who exhibit
skill in running their peripheral businesses tend to retain acquired plants. Plants retained by acquirers increase in productivity whereas sold plants do not. The extent of post-merger restructuring activities and their cross-sectional variation do not support an empire building explanation for mergers. Acquirers readjust their firm boundaries in ways that are consistent with the exploitation of their comparative advantage across industries.
Number of Pages in PDF File: 44
Keywords: Mergers, Acquisitions, Restructuring, Selloffs, Theory of the Firm
JEL Classification: G30, G31, G32, G34
Date posted: March 20, 2008
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