NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Corporate Performance Improve After Mergers?

Paul M. Healy, Krishna G. Palepu, Richard C. Rubak

NBER Working Paper No. 3348
Issued in May 1990
NBER Program(s):   ME   PE

We examine the post-acquisition operating performance of merged firms using a sample of the 50 largest mergers between U.S. public industrial firms completed in the period 1979 to 1983. The results indicate that merged firms have significant improvement in asset productivity relative to their industries after the merger, leading to higher post-merger operating cash flow returns. Sample firms maintain their capital expenditure and R&D rates relative to their industries after the merger, indicating that merged firms do not reduce their long-term investments. There is a strong positive relation between postmerger increases in operating cash flows and abnormal stock returns at merger announcements, indicating that expectations of economic improvements underlie the equity revaluations of the merging firms.

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Published: JFEC, Vol. 31, no. 2 (1992): 135-176.

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