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Productivity, Restructuring, and the Gains from Takeovers

59 Pages Posted: 7 Mar 2011 Last revised: 28 Jun 2013

Xiaoyang Li

Shanghai Jiao Tong University (SJTU)

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Date Written: December 3, 2012


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 reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets’ investment efficiency through reallocating capital to industries with better investment opportunities. 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 takeovers.

Keywords: takeovers, announcement returns, productivity, investments, wages, employment

JEL Classification: G34, D24, J30

Suggested Citation

Li, Xiaoyang, Productivity, Restructuring, and the Gains from Takeovers (December 3, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: or

Xiaoyang Li (Contact Author)

Shanghai Jiao Tong University (SJTU) ( email )

800 Dongchuan Rd
Minhang, Shanghai 200240

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