Productivity, restructuring, and the gains from takeovers

Xiaoyang Li

Journal of Financial Economics, 2013, vol. 109, issue 1, 250-271

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 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.

Keywords: Takeovers; Announcement returns; Productivity; Investments; Wages; Employment (search for similar items in EconPapers)
JEL-codes: D24 G34 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Working Paper: PRODUCTIVITY, RESTRUCTURING, AND THE GAINS FROM TAKEOVERS (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:109:y:2013:i:1:p:250-271

DOI: 10.1016/j.jfineco.2013.02.011

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