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Does Corporate Performance Improve after Mergers?

42 Pages Posted: 27 Apr 2000 Last revised: 27 Aug 2010

Paul M. Healy

Harvard Business School; National Bureau of Economic Research (NBER)

Krishna Palepu

Harvard University - Harvard Business School; Harvard University - David Rockefeller Center for Latin American Research; Harvard Business Review; NBER; International Academy of Management

Richard S. Ruback

Harvard Business School

Date Written: May 1990

Abstract

We examine the post-acquisition operating performance of merged firms using a sample of the 50 largest mergers between U.S. public industrial firms completed in the period 1979 to 1983. The results indicate that merged firms have significant improvement in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns. Sample firms maintain their capital expenditure and R&D rates relative to their industries after the merger, indicating that merged firms do not reduce their long-term investments. There is a strong positive relation between postmerger increases in operating cash flows and abnormal stock returns at merger announcements, indicating that expectations of economic improvements underlie the equity revaluations of the merging firms.

Suggested Citation

Healy, Paul M. and Palepu, Krishna and Ruback, Richard S., Does Corporate Performance Improve after Mergers? (May 1990). NBER Working Paper No. w3348. Available at SSRN: https://ssrn.com/abstract=226669

Paul Healy (Contact Author)

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Harvard Business School ( email )

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Krishna Palepu

Harvard University - Harvard Business School ( email )

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Richard Ruback

Harvard Business School ( email )

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