Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants

Mert Demirer and Ömer Karaduman

No 32727, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using rich data on hourly physical productivity and thousands of ownership changes from US power plants, we study the effects of acquisitions on efficiency and underlying mechanisms. We find a 2% average increase in efficiency for acquired plants, beginning five months after acquisitions. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements. Finally, acquired plants improve their performance beyond efficiency by increasing output and reducing outages.

JEL-codes: L22 L25 L40 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-com, nep-eff, nep-ene, nep-ind and nep-reg
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