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Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants

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  • Mert Demirer
  • Ömer Karaduman

Abstract

Using rich data on hourly physical productivity and thousands of ownership changes from US 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.

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  • Mert Demirer & Ömer Karaduman, 2024. "Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants," NBER Working Papers 32727, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32727
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    More about this item

    JEL classification:

    • 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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