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Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants

Author

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  • Demirer, Mert

    (MIT)

  • Karaduman, Omer

    (Stanford U)

Abstract

Using rich data on hourly physical productivity and thousands of ownership changes from U.S. power plants, we study the effects of acquisitions on efficiency and underlying mechanisms. We find a 2% average increase in efficiency for acquired plants, beginning five months after acquisitions. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements. Finally, acquired plants improve their performance beyond efficiency by increasing output and reducing outages.

Suggested Citation

  • Demirer, Mert & Karaduman, Omer, 2024. "Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants," Research Papers 4209, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:4209
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/do-mergers-acquisitions-improve-efficiency-evidence-power-plants
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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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