Productivity, Restructuring, and the Gains from Takeovers

51 Pages Posted: 12 Apr 2013

Date Written: April 1, 2013

Abstract

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 significantly reduce capital expenditures, wages, and employment in target plants, though output is unchanged. Acquirers improve targets’investment efficiency through better capital reallocation. 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 the context of takeovers.

Keywords: Takeovers, Announcement returns, Productivity, Investments, Wages, Employment

JEL Classification: G34, D24

Suggested Citation

Li, Xiaoyang, Productivity, Restructuring, and the Gains from Takeovers (April 1, 2013). US Census Bureau Center for Economic Studies Paper No. CES-WP-13-18, Available at SSRN: https://ssrn.com/abstract=2248087 or http://dx.doi.org/10.2139/ssrn.2248087

Xiaoyang Li (Contact Author)

Deakin University ( email )

70 Elgar Rd
Burwood, Victoria 3125
Australia

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