Mergers, Sell-Offs, and Economic Efficiency

Mergers, Sell-Offs, and Economic Efficiency

Mergers, Sell-Offs, and Economic Efficiency

Mergers, Sell-Offs, and Economic Efficiency

Synopsis

This book covers the consolidation and merger of corporations and corporate divestiture in the United States.

Excerpt

This volume addresses a set of questions on which there has been heated debate in industry, government, and academic circles: what are the consequences of mergers and takeovers for the subsequent performance of the companies involved and the productivity of the manufacturing sector more generally. Research using stock price data has produced equivocal results, while studies of profitability before and after mergers have suffered from diverse methodological problems. This study taps a rich data base that is well suited to illuminating the economic outcomes of mergers made during the 1960s and early 1970s. Its core is the Federal Trade Commission's Line of Business information on the financial performance of manufacturing operations in 471 U.S. corporations over the years 1975-77. The authors have linked to that data historical information on some 6,000 mergers and takeovers consummated between 1950 and 1976, pre-merger profitability statistics from several smaller samples, and the divisional sell-offrecords of the Line of business companies from 1974 through 1981. These data permit a thorough analysis of the characteristics of acquired companies, the changes in profitability over the years following merger, and the survival history of acquired units.

The authors devote special attention to the high fraction of acquisitions that are subsequently sold off. In addition to a statistical analysis of the determinants of divestiture, the authors distill the results of 15 case studies, tracing the histories of units from their initial acquisition through the organizational and financial changes that followed divestiture. Using these data, the authors estimate the impact of mergers on productivity growth in the manufacturing sector during the 1970s and draw implications for business leaders and government policymakers.

For the research reported here, F. M. Scherer received a National Science Foundation grant, two Swarthmore College faculty research grants, and a sabbatical leave from Swarthmore in 1985-86, which he . . .

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