The Market for Corporate Assets: Who Engages in Mergers and Asset Sales and are there Efficiency Gains?

Abstract:     
We analyze the market for firms, divisions and plants of manufacturing firms using a large sample of plant-level data for the period 1974-92. There is an active market for corporate assets, with close to 7 percent of plants changing ownership annually through mergers,acquisitions and asset sales in peak expansion years in the economy. Partial firm sales account for more than half of these transactions. The probability of asset sales and whole-firm transactions is related to firm organization and ex ante efficiency of buyers and sellers. We find that efficiency gains of assets sold are significantly higher the more efficient the buying firm relative to the selling firm.

This timing of sales and the pattern of efficiency gains suggests that the transactions that occur, especially through asset sales of plants and divisions, tend to improve the allocation of resources and are consistent with a simple neoclassical model of profit maximizing by firms.

JEL Classifications: G34, D24

Working Paper Series