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Journal of Financial Economics 31 (1992) 135-175. North-Holland
Does corporate
after mergers?*
performance improve
Paul M. Healy
Massachusetts Institute of Technology, Cambridge, MA 02139, USA
Krishna G. Palepu and Richard S. Ruback
Haward Business School, Cambridge, h&l 02163, USA
Received April 1990, final version received January 1992
我们研究美国50家1979年和1984年中期之间的兼并收购后业绩。合并后的公司显示了显着改善资产生产力，相对自己之前的产业，从而导致更高的经营性现金流回报。We examine post-acquisition performance for the 50 largest U.S. mergers between 1979 and mid-1984. Merged firms show significant improvements in asset productivity relative to their industries, leading to higher operating cash flow returns. This performance improvement is particularly strong for firms with highly overlapping businesses. Mergers do not lead to cuts in long-term capital afld R&D 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. http://www.ukassignment.org/mgessaydx/ 1. Introduction
本研究探讨收购与公司合并后的现金流表现，并探讨兼并引起的变化，现金流性能的来源。This study examines the postmerger cash flow performance of acquiring and target firms, and explores the sources of merger-induced changes in cash flow performance. Our research is motivated by the inability of stock price We acknowledge the helpful comments of the referee, Michael Jensen (the editor), Robin Cooper, George Foster, Robert Kaplan, Richard Leftwich, Mark Wolfson, Karen Wruck, and seminar participants a’r Baruch College, Carnegie Mellon University, Columbia University, Dartmouth College, Duke University, the Federal Reserve Bank (Washington, DC), Harvard University, the London School of Economics, the University of Michigan, Massachusetts Institute of Technology, New York University, Northwestern University, the University of Minnesota,
the University of Rochester, Stanford University, the University of Southern California, the University of Alberta, and the U.S. Department of Justice.
We are thankful to Chris Fox and Ken Hao, who provided research assistance, and the International Financial Services Center at MIT and the Division of Research at the Harvard Business School for financial support.There is near-unanimous agreement that target stockholders benefit from mergers, as evidenced by the premium they receive for selling their shares.
Stock price studies are also unable to provide evidence on the sources of any merger-related gains. Yet differences of opinion about the source of the gains in takeovers underlie much of the public policy debate on their desirability. 从并购的收益的产生有各种来源，如经营协同效应，节税，员工或其他利益相关者的转移，或增加垄断租金。股权收益只有一些来源明确有利于在社会层面。Gains from mergers could arise from a variety of sources, such as operating synergies, tax savings, transfers from employees or other stakeholders, or increased monopoly rents. Results reported in section 3 show that the merged firms have increases in postmerger operating cash flow returns in comparison with their industries.
These increases arise from postmerger improvements in asset productivity. We find no evidence that the improvement in postmerger cash flows is achieved at the expense of the merged firms’ long-term viability, since the sample firms maintain their capital expenditure and R&D rates in relation to their industries. Our results differ from the findings reported by Ravenscraft and Scherer (1987) and Herman and Lowenstein (1988), who examine earnings performance after takeovers and conclude that merged firms have no operating improvements.
2. Experimental design
2. I. Sample
The analysis in this study is based on the largest 50 acquisitions during the period January 1979 to June 1984. We limit the number of acquisitions studied to make the hand data collection tasks manageable. The largest acquisitions have several important advantages over a similarly sized random sample. First, although the sample consists of a small fraction of the total acquisitions in the sample period, the total dollar value of the 59 firms selected accounts for a significant portion of the dollar value of domestic
138 P. Heal’! et al., Performance improcnements after mergers merger activity4 Second, if there are economic gains from a takeover, they are most likely to be detected when the target firm is large. Third, it is less likely that the acquirers in the sample undertake equally large acquisitions before or after the events we study, reducing the probability of confounding events. Finally, public concern about the consequences of takeovers is typically triggered by the largest transactions, making them interesting in their own right.
A summary of the sample is provided in the appendix. The information provided includes target and acquiring firms’ names, a description of their businesses and industries from Value Line reports, target equity v&ue before the merger, the target’s assets as a percentage of the acquirer’s assets, and the merger completion date. The sample targets and acquirers represent a wide cross-section of Value Line industries. The target firms belong to 24 industries; the acquiring firms come from 33 industries.
P. Healy et al., Performance improvements after mergers 139 The sample acquisitions are significant economic events for purchasing firms. On average, target firms are 42% of the assets of acquirers, where assets are measured by the book value of net debt (long-term debt, plus short-term debt, less cash and marketable securities) plus the market value of equity one year prior to the merger.
2.2. Performance measurement
We use pretax operating cash flow returns on assets to measure improvements in operating performance. Conceptually, we focus on cash flows because they represent the actual economic benefits generated by the assets. Since the level of economic benefits is affected by the assets employed, we scale the cash flows by the assets employed to form a return measure that can be compared across time and across firms.
We define operating cash flows as sales, minus cost of goods sold and selling and administrative expenses, plus depreciation and goodwill expenses. This measure is deflated by the market value of assets (market value of equity plus book value of net debt) to provide a return metric that is comparable across firms. Unlike accounting return on book assets, our return measure excludes the effect of depreciation, goodwill, interest expense and income, and taxes. 2.2.1. Effects of purchase and pooling accounting
In our sample, 38 mergers (76%) use the purchase method and the remaining 12 use the pooling of interests method. The purchase method restates the assets and liabilities of target firms at their current market values. No such revaluation is permitted under the pooling method. Further, under the purchase method the acquirer records any difference between the acquisition price and the market value of identifiable assets and liabilities of the target company as goodwill, and amortizes it. No goodwill is recorded 140 P.
The same transaction typically results in lower postmerger earnings under purchase accounting than under pooling. The purchase method increases depreciation, cost of goods sold, and goodwill expenses after the takeover. Also, in the year of the merger, earnings are usually lower under purchase acccunting because the target’s and acquirer’s earnings are consolidated for a shorter period than under pooling.
Excluding the first year also mitigates the effect of inventory write-ups under the purchase method, since this inventory is usually included in cost of sales in the merger year.6 Because the asset base in our return metric is the market value of assets, rather than book value, it is also unaffected by the accounting method used to record the merger.
融资兼并的方法的影响 2.2.2. Effects of method of financing mergers The method used to finance the sample transactions varies considerably. Th,,iy percent of the sample mergers are stock transactions, 26% are financed by cash, and the remaining 14% are financed by combinations of cash, stock, and other securities. It is important to control for these financing differences in measuring postmerger performance.
Since the OifIerences in earnings reflect the financing choice and not differences in economic performance, it is misleading to compare reported accounting earnings, which are computed after interest income and expense, for firms that use different methods of merger financing. We use operating cash flows before interest expense and income from short-term investments deflated by the market value of assets (net of short-term investments) to measure performance. This cash flow return is unaffected by the#p#分页标题#e#
choice of financing.
2.3. Performance benchmark
We aggregate performance data of the target and bidding firms before the merger to obtain the pro forma premerger performance of the combined firms. Comparing the postmerger performance with this premerger benchmark provides a measure of the change in performance. 一些兼并前和兼并后的表现之间的差异可能是由于整个经济体系和行业因素，或合并前公司的具体表现的延续。因此，我们使用不正常的行业调整后的绩效目标和投标公司作为我们的首要基准，以评估合并后的性能。 But some of the difference between premerger and postmerger performance could be also due to economywide and industry factors, or to a continuation of firm-specific performance before the merger. Hence, we use abnormal industry-adjusted performance of the target and bidding firms as our primary benchmark to evaluate postmerger performance. Abnormal industry-adjusted performance is measured as the intercept of a cross-sectional regression of postmerger industry-adjusted cash flow returns on the corresponding premerger returns. For each year and firm, industryadjusted performance measures are calculated by subtracting the industry median from the sample firm value. Compustat Industrial and Research files.
2.4. Comparison with prior research
Earlier studies of postmerger performance have a number of methodological problems, making their findings difficult to interpret. Ravenscraft and Scherer (I987) examine the performance in 1974 to 1977 for firms acquired between 1950 and 1977. Since the postmerger years examined are not aligned with the merger, it is hard to know what to make of the performance comparisons.
Further, the return on equity measure, which is used to judge postmerger performance, does not control for differences in pooling and purchase accounting, methods of merger financing, or the effect of common industry shocks. These limitations make it diflicult to interpret the study’s findings.
3. Cash flow return performance
3.1. Operating cash flow returns
As described in section 2, we aggregate pretax operating cash flows for the target and acquiring firms to determine pro forma cash flows for the combined firms in each of the five years before the merger (years - 5 to - 1).Postmerger operating cash flows are the actual values reported by the merged firm in years I to 5. We deflate the operating cash flows by the market value of assets. Operating cash flow returns are the ratio of operating cash flows during a given year to the market value of assets at the beginning of that year. The market value of assets is recomputed at the beginning of each year to control for changes in the size of the firm over time. For premerger years the market value of assets is the sum of the values for the target and acquiring firms. The market value of assets of the combined firm is used in the postmerger years.
We also adjust the merging firms’ performance for the impact of contemporaneous unrelated events by measuring industry cash flow returns during the same ten-year period. We use Value Line industry definitions, and exclude the target and acquiring firms’ returns from the industry computations.
We focus our analysis on years -5 to - 1 arid 1 to 5. Year 0, the year of the merger, is excluded from the analysis for two reasons. First, many of the acquiring firms use the purchase accounting method, implying that in the year of the merger the two firms are consolidated for financial reporting purposes only from the date of the merger. Results for this year are therefore not comparable across firms or for iniustry comparisons. Second, figures are affected by one-time merger costs incurred during that year,
makin? it difficult to compare them with results for other years.
3.1.1. Changes in cash flows and assets
Table 1 reports the changes in cash flows and assets in years 1 to 5 relative to the year before the merger. The merged firms have a median increase in cash flows of 14% in year 1, 17% in year 2, 16% in years 3 and 4, and 9% in year 5.
Operating cash flows are sales less cost of goods sold, less selling and administrative expenses, plus depreciation. The market value of assets, measured at the beginning of the year, is the market value of equity plus the book values of preferred stock and net debt. Year - 1 cash flow and asset values for the combined firm are weighted averages of target and acquirer values, with the weights being the relative asset values of the two firms.
Significantly different from zero at the 1% level, using a two-tailed test.Significantly different from zero at the 5% level, using a two-tailed test. performed better in the postmerger period, however, because assets also increased during this period. Asset values increase by 15% in year 1, 20% in year 2, 28% in year 3, 23% in year 4, and 18% in year 5. Also, the sample firms’ industries experience growth in cash flows and assets in the postmerger period. The cash flow return measures we use to gauge performance adjust for changes in the size of the sample firms and their corresponding industries that are evident in table 1.
3.1.2. Raw cash jlow returns
Panel A of table 2 reports median pretax unadjusted operating cash flow. After the merger,the median pretax operating returns are lower, ranging from 18.4% to 22.9% with a median annual value of 20.5% for the whole period. P. Healy et al., Performaxe improvements after mergers 145 the postmerger period. These changes cannot be attributed to the merger, however, if there is a contemporaneous downward trend in industry cash flow returns. Industry-adjusted returns, which are differences between values for the merged firms and their weighted-average industry median estimates, correct for this problem.
3. I .3. Industry-adjusted cash flow returns
Columns 3 and 4 in panel A, table 2 show median industryadjusted cash flow returns and the percentage of sample firms with positive industry-adjusted returns. Merged firms have higher operating cash flow returns on assets than their industries’ in the postmerger period. Median industry-adjusted operating returns for the merged firms are 3.0% in year 1, 5.3% in year 2, 3.2% in year 3, and 3.0% in year 4, all significantly different from zero! Year 5 also shows better performance than the industry, but is not statistically significant. The benchmark for the significant postmerger industry-adjusted returns depends on the relation between industry-adjusted returns before and
after the merger.如果没有关系前和合并后的行业调整后的回报和适当的基准，合并后的行业调整后的回报是零。另外，适当的基准是合并前的行业调整后的回报，如果企业执行 于或低于自己的行业合并前合并后可能实现相同的效能。 If there is no relation between pre- and postmerger industry-adjusted returns, the appropriate benchmark for the postmerger industry-adjusted returns is zero. Alternatively, the appropriate benchmark is the premerger industry-adjusted return if firms that perform above or below
their industries before the merger are likely to realize the same performance after the merger.
For our sample, there is no evidence of superior industry-adjusted pretax operating cash flow returns in the premerger period, Median returns are not significantly different from zero in four of the five years. The percentage of positive industry-adjusted returns is r,at significantly different from the value expected by chance in four of the five years before the merger. The overall median annual return in the premerger period is only 0.3%, which is statistically insignificant. This suggests that, on average, the postmerger performance is not due to a continuation of superior premerger industry performance. In the next section we use a cross-sectional regression approach to compare performance before and after the merger.
3.1.4. Abnormal industry-adjusted cash flows returns
Our measure of abnormal industry-adjusted returns extends the industryadjusted return measure to incorporate the relation between pre- and postmerger industry-adjusted returns. Abnormal industry-adjusted cash flow returns are estimated using the following cross-sectional regression:
Our measure of the abnormal industryadjusted return is the intercept cy from (1). The slope coefficient p captures any correlation in cash flow returns between the pre- and postmerger years
As shown in panel B of table 2, for our sample, the estimate of /? is 0.37, indicating that industry-adjusted cash flow returns tend to persist over time. The estimate of ~1s!h ows ;hat there is a 2.8% per-year increase in postmerger cash flow returns after premerger performance is controlled for. This evidence indicates that there is a significant improvement in the merged firms’ cash flow returns in the post-merger period.”
3.2. SensitiGty analysis
3.2.1. Use of Value Line industry definitions
The industry-adjusted results are strikingly cash flow returns before industry adjustment. different from the operating The industry-adjusted results show a significant increase in postmerger performance and the unadjusted returns show a decrease. We think that industry-adjusted returns are a more reliable measure of performance, since they control for industry events unrelated to the merger. But, they are also sensitive to the definitions of industries used in the analysis. To test whether the industry-adjusted results are sensitive to the particular industry definitions employed by Value Line, we use a market performance benchmark. #p#分页标题#e#
Compustat Industrial and Research tapes. Median market-adjusted cash flow returns for the sample firms are 1.3% (statistically insignificant) in the “‘These results remain unchanged when we reestimate the model excluding outlier observations identified using Belsley, Kuh, and Welsch (1980) influence diagnostics. We also conduct specification tests for regression equation (1) to assess whether the residuals are homoskedastic see White (1980)]an d normally distributed, We cannot reject the hypotheses that the residuals are homoskedastic and normally distributed at the 5% level.148 P. Healy et al., Performance improcements after mergers premerger period and 4.3% (statistically significant) in the postmerger years,confirming improvements in industry-adjusted performance.
3.2.2. Change in market value of assets
Our measure of industry-adjusted returns can increase in the postmerger period if investors lower their assessment of merged firms’ prospects in relation to their industries. Since we use the market value of equity in our computation of asset values, a postmerger decline in equity value will reduce our measure of asset values. 如果现金流量保持不变，这样的资产价值下降，会导致现金流回报的增加，使得合并后的记录在上部分变得杂乱。If cash flows are held constant, such a decline in asset values would lead to an increase in cash flow returns, making the postmerger improvements documented in the previous section spurious. To examine this possibility, we compute the difference between annual stock returns for the sample firms and their industries in years surrounding the merger.
Summary statistics on equity returns in years surrounding the merger are reported in table 3. We compute both raw equity returns and industryadjusted returns for years -5 to - 1 and 1 to 5 using Compustat data.
Consistent with the evidence reported in the literature, the median returns in the preannouncement and announcement periods in year 0 are -3.0% and 7.7%, which are statistically significant. There is no evidence that the market value of equity for the sample firms declines in comparison with their industries in the postmerger period. Median industry-adjusted returns are insignificant in the postmerger period in years 0 to 4, and are significantly positive in year 5. Mean industry-adjusted returns, which are not reported here, are comparable to the sample medians.
3.2.3. For acquirers, the merger announcement period is the dete from the first announcement of a takeover offer by the acquirer to the date a merger is completed. Premerger returns for the combined firm are weighted averages of target and acquirer values, with the weights being the relative equity values of the two firms. Postmerger performance measures use data for the merged firms. Industry-adjusted returns are computed for each firm and year as the difference between the sample-firm value in that year and median values for other firms in the same industry (as defined by Value Line in year - 1).
Significantly different from zero at the 10% level, using a two-tailed test.To compute the value of equity for the combined firm at the beginning of year 1, we start with the total market equity value for the target and acquirer at the beginning of year - I.
Both these limitations are avoided by the market value of assets used in our original cash flow return measure.
The computation of quasi-market value of assets begins with market
values in year - 1 and adjusts for changes in capital available for reinvestment in other years. Premerger returns for the combined firm are weighted averages of target and acquirer values,with the weights being the relative asset values of the two firms. Postmerger returns are for the merged firm. Industry-adjusted cash flow returns are computed for each firm and year as the difference between the sample-firm value in that year and median values for other firms in the same industry (as defined by Value Line in year - 1).
3.3. Components of industry-adjustedw sh flow returns
The improvements in cash flow returns in the postmerger period can arise from a variety of sources. These include improvements in operating margins, greater asBet productivity, or lower labor costs. Alternatively, they may be achieved by focusing on short-term performance improvements at the expense of the long-term viability of the firm. In this section we provide evidence on which of these sources contribute to the sample firms’ postmerger cash flow return increases. The specific variables analyzed are italicized in the text and defined in table 5. The results are reported in tabie 6.
3.3.1. Operating performance changes
The operating cash flow return on assets can be decomposed into cash flow margin on sales and asset turnover. Cash flow margin on sales measures the pretax operating cash flows generated per sales dollar. Asset turnover measures the sales dollars generated from each dollar of investment in assets.
The variables are defined so that their product equals the operating cash flow return on assets. l2 We again conduct specification tests for (1) to assess whether the residuals are homoskedastic see While U930); acid normally distributed. We cannot reject the hypotheses that the residuals are homoskedastic and normally distributed at the 5% level.
The results in table 6 suggest that the increase in industry-adjusted operating returns is attributable to an increase in asset turnover, rather than an increase in operating margins. In years -5 to - 1 the merged firms have industry-adjusted median asset turnover of -0.2, implying that they generated 20 cents less in sales than their competitors for each dollar of assets. In years 1 to 5 they close this gap as they achieve asset turnovers comparable to their industries’.
After the merger the pension expense of the merged firms is reduced to the industry level. There are two ways to view these findings. One interpretation is that mergers are followed by improvements in operating efficiency achieved through reduced labor costs. Alternatively, mergers lead to a wealth redistribution between employees and stockholders through renegotiations of explicit and implicit employment contracts. Whatever the explanation, the labor cost reductions in the postmerger period do not appear to be large, since they do not lead to significant changes in postmerger operating margins.;”
3.3.2. Inrestmen t policy changes
Since our analysis is limited to five years after the merger, we cannot provide direct evidence on cash flows beyond this period. To assess whether the merged firms focus on short-term performance improvements at the expense of long-term investments, we examine their capital outlays and research and der:eZopment (R&L D) expense. These expenditure patterns are reported in table 6. The median capital expenditures as a percentage of assets is 14.4% in the premergLr period and 10.6% in the postmerger years.
The median R&L D expense is 2% of assets in years - 5 to - 1 and 2.1% in years 1 to 5. The capital expenditures and R&D of the sample firms are not significantly different from those of their industry counterparts in either the pre- or the postmerger period.
‘“Pontiff, Shleifer, and Weisbach (1990) report that 11% of takeovers involve pension fund reversions, accounting for lo-13% of takeover premiums in these transactions. Thus for their sample as a whole pension fund reversions ac,‘otint for an average l-2% of the takeover premium.
Significantly different from zero at the 1% level, using a two-tailed test.‘Significantly different from zero at the 10% level, using a two-tailed test. market performance and the postmerger cash flow performance. If the stock market capitalizes expected improvements, there should be a significant positive correlation between the stock market revaluation of merging firms and the actual postmerger cash flow improvements.
4.1. Stock returns at merger announcements
Market-adjusted stock returns for the target and acquirer at the announcement of the merger are reported in pase! A. of table 7.‘” Returns for the target are measured from five days before the first offer is announce “Risk-adjusted returns, computed using premerger market model estimates, are similar to t market-adjusted returns reported in the paper. 158 P. Healy et al., Performance improcements after mergers necessarily by the ultimate acquirer) to the date the target is delisted from trading on public exchanges. Returns for the acquirer are measured from five days before its first offer is announced to the date the target is delisted from trading on public exchanges. Much as earlier studies have found, target shareholders earn large positive returns from mergers (mean 45.6% and median 44.8%), and acquiring stockholders earn insignificant returns.
We also compute the aggregate market-adjusted return for the two firms in the merger announcement period.
4.2. Asset returns at merger announcements
Our tests examine whether the change in equity values at merger announcements can be explained by cash flow return improvements in the postmerger period. In section 3 we measured postmerger performance using cash flow return on assets, whereas the merger announcement returns computed above are returns on equity. Therefore, before we correlate merger announcement returns and postmerger cash flow improvements, we compute asset returns at merger announcements from equity returns to#p#分页标题#e#
ensure that the anticipated gains from mergers and the measured gains are comparable.
160 P. Healy et al., Performance improcem?pnts after mergers Although (6) does not have a constant, we estimate a regression equation with an intercept and test whether it is zero.The regression results are shown in panel C of table 7. The estimated model has an R* of 30%.
There are two interpretations of the statistically and economically significant relation between our measure of postmerger performance improvements and the market’s revaluation of the merged firms’ equity at the merger announcement. First, if equity markets are efficient, the findings indicate that our estimates of postmergcr performance are reasonable. Alternatively, the findings can be viewed as evidence that the stock price gains at the merger announcement are related to expectations of subsequent cash flow improvements.
5. Discussion
Our finding that there are postmerger cash flow increases advances the debate on mergers from whether there are cash flow changes after these transactions to why these cash flow improvements OCC~L The improvements in samb’e firms’ cash flow returns are primarily a result of increased asset Specification tests are conducted for (6) to assess whether the residuals are homoskedastic see White (1980)] and normally distributed. We cannot reject the hypotheses that the residuals are homoskedastic and normally distributed at the 5% level. We also reestimated the regression excluding observations more than two standard deviations from the mean for each variable. The results are very similar to those reported. Finally, we estimate Spearman rank correlation coefficients between the median annual postmerger industry-adjusted cash flow return and unexpected asset returns at the merger announcement. The correlation is 0.41 and is significant at the 1% level.
These questions, which have important managerial and public policy implications, can be answered only through development of structural models of how mergers improve cash flows. We do not attempt to undertake such an ambitious exercise in this paper, but, we do provide some preliminary evidence and suggest directions for future research.
5. I. Business orlerlap of merging firms and postmerger performance
One popular hypothesis on how mergers improve cash flows is that they provide opportunities for economies of scale and scope, synergy, or product market power. This implies that mergers by firms that have overlapping businesses will show greater cash flow improvements than mergers between firms with no overlap. We examine this proposition by classifying our sample mergers as those with high, medium, and low business overlap between the target and acquiring firms. This classification is made by reading the line of business discussion in the merging firms’ annual reports, merger prospectuses,
Value Line reports, and Moody’s Industrial Manuals. The following cases illustrate our classifications. The combination of Best Products and Modern Merchandising, both of which are catalog showroom retailers, is classified as a high overlap transaction. The merger between
Holiday Inns and Harrahs is treated as a transaction with medium overlap because Holiday Inns operates a hotel chain and arrahs operates casinos 162 P. Hea!:) et al., Performance improL*ements after mergers and associated hotels. HIGH is a dummy variable that is one if the target and acquirers are in highly overlapping businesses and zero otherwise, and MEDIUM is a dummy variable that is one if there is a medium overlap between the target and acquiring firms’ businesses and zero otherwise.
Significantly different from zero at the 5% level, using a two-tailed test. dSignificantly different from zero at the 10% level, using a two-tailed test.
5.2. Transaction characteristics tif merging firms and postmerger performance
Transaction characteristics, such as the form of financing, whether the transaction is hostile or friendly, and the size of the target firm, are frequently cited as important to the ultimate success of mergers. We use postmerger cash flow returns for different types of transactions to examine each of the hypotheses associated with these characteristics. We estimate a cross-sectional regression similar to (7) with dummy variables representing the form of financing and find no significant postmerger performance differences between transactions financed with equity, cash, or a mixture of securities.
In summary, while there is some evidence that the degree of business overlap between merging firms influences postmerger performance, there is little evidence that transaction characteristics have a significant impact.20 We view our analysis on the determinants of postmerger performance as Greliminary,however, since our study is designed to examine whether performance improves after a merger.
Given the complexity and heterogeneity of reasons for mergers, we believe that large-sample studies will provide limited new insights into factors that influence the outcomes of mergers. A promising approach is to examine a smaller number of mergers in greater detail. These clinical studies can provide valuable evidence on the mechanisms through which mergers increase cash flows, and are likely to be fruitful avenues for future research.
6. Summary
This paper examines 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 mid-1984 We develop a methodology to deal with a number of measurement issues that arise in studying the consequences of takeovers. Further, we integrate accounting and stock return data in a consistent fashion to permit richer tests of corporate control theories. This general approach has been adopted by several recent studies to examine mergers and acquisitions - Tehranian and Cornett (1991) and Linder and Crane (1991) analyze performance in bank mergers, and Jarrell (1991) investigates postmerger performance using analysts’ forecasts of sales margins.
我们的研究结果表明，合并后的公司有显着的改善，在合并后的经营性现金流回报，资产生产力的增加，相对于先前的产业生产。Our findings indicate that merged firms have significant improvements in operating cash flow returns after the merger, resulting from increases in asset productivity relative to their industries. These improvements are particularly strong for transactions involving firms in overlapping businesses. Postmerger cash flow improvements do not come at the expense of long-term perfor-
“‘The findings on the relation between transaction characteristics and postmerger performance are not sensitive to outliers. “Recent examples of clinical studies on corporate control issues include Baker and Wruck ( 1989), Kaplan ( 1989), and Donaldson ( 1990). P. Healy et al., Performance improvements after mergers 105 mance, since sample firms maintain their capital expenditure and R&D rates relative to their industries after the merger.
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