Post-Merger Restructuring and the Boundaries of the Firm

44 Pages Posted: 20 Mar 2008  

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Gordon M. Phillips

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Nagpurnanand Prabhala

University of Maryland - Robert H. Smith School of Business

Date Written: March 18, 2008

Abstract

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.

Keywords: Mergers, Acquisitions, Restructuring, Selloffs, Theory of the Firm

JEL Classification: G30, G31, G32, G34

Suggested Citation

Maksimovic, Vojislav and Phillips, Gordon M. and Prabhala, Nagpurnanand, Post-Merger Restructuring and the Boundaries of the Firm (March 18, 2008). AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1108526 or http://dx.doi.org/10.2139/ssrn.1108526

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/vmax/

Gordon M. Phillips

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nagpurnanand Prabhala (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

4427 Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2165 (Phone)
301-405-0359 (Fax)

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