Post-Merger Restructuring and the Boundaries of the Firm

Mergers and acquisitions are a fast way for a firm to grow. Using plant-level data, we examine how firms redraw their boundaries after acquisitions. We find that there is a large amount of restructuring in a short period following mergers. Acquirers sell 27% and close 19% of acquired plants within three years of the acquisition. Plants in the target's peripheral divisions, especially in industries in which asset values are increasing, and in industries in which the acquirer does not have a comparative advantage, are more likely to be sold by the acquirer. Acquirers with skill in running their peripheral divisions tend to retain more acquired plants. Plants retained by acquirers increase in productivity whereas sold plants do not. The extent of post-merger restructuring activities and their cross-sectional variation do not support an empire building explanation for mergers. Acquirers readjust their firm boundaries in ways that are consistent with the exploitation of their comparative advantage across industries.