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Productivity, Restructuring, and the Gains from Takeovers

Xiaoyang Li

Shanghai Jiaotong University

December 3, 2012

Journal of Financial Economics (JFE), Forthcoming

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.

Number of Pages in PDF File: 59

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

JEL Classification: G34, D24, J30

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Date posted: March 7, 2011 ; Last revised: June 28, 2013

Suggested Citation

Li, Xiaoyang, Productivity, Restructuring, and the Gains from Takeovers (December 3, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1777464 or http://dx.doi.org/10.2139/ssrn.1777464

Contact Information

Xiaoyang Li (Contact Author)
Shanghai Jiaotong University ( email )
800 Dongchuan Rd
Minhang, Shanghai 200240
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