Does Operating Performance Really Improve Following Corporate Acquisitions?
Posted: 14 Jul 2001
This article examines the impact of the method of payment used in acquisitions on the acquiring firms' post-merger operating cash flow and some of its components cash inflow from sales, cash payments to suppliers, and payments for other operating expenses. I find that acquiring firms that pay with cash are able to increase their post-merger cash flow significantly, relative to peer firms, primarily through improved asset turnover (sales per dollar of assets). The post-merger cash flow of stock acquisitions, however, declines significantly. Although stock acquisitions are able to implement effective cost-cutting strategies, the decline in asset turnover outweighs benefits from cost-cutting strategies.
Note: Previously titled Accounting Based Performance of Acquiring Firms and Method of Payment used in Acquisitions
JEL Classification: M41, G34
Suggested Citation: Suggested Citation