Mert Demirer from MIT-Sloan will present "Do Mergers and Acquisitions Improve Efficiency" (with Omer Karaduman).

Abstract:

Using rich data on hourly physical productivity and five thousand ownership changes from US power plants, we study the effects of mergers and acquisitions on efficiency and provide evidence on the mechanisms. We find that acquired plants experience an average of four percent efficiency increase five to eight months after the acquisition. Three-quarters of this efficiency gain is explained by increased productive efficiency; the rest comes from improved capacity management at the plant level and allocative efficiency at the portfolio level. Our findings suggest that acquisitions reallocate assets to more productive uses: we find that \textit{high} productive firms buy \textit{under-performing} assets from \textit{low} productive firms and make the acquired asset almost \textit{as productive as} their existing assets after the acquisition. Finally, investigating the mechanism, the evidence suggests that acquired plants achieve higher efficiency through low-cost operational improvements rather than high-cost capital investments.