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The authors investigate the impact of merger on innovation and efficiency using a micro dataset of Japanese manufacturing firms including unlisted firms during the period of 1995-1999. They find that the acquirer's Total Factor Productivity (TFP) decreases immediately after mergers and does not significantly recover to the pre-merger level within three years after mergers. They also find that the R&D intensity does not significantly change after mergers in spite of a significant increase in the debt-to-asset ratio. The results suggest that the costs of business integration are large and persistent. To take into considering large integration costs, they also analyze the post-merger performance from one year after mergers, finding no significant increase in TFP or R&D intensity up to three years after mergers.
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