Volume Title: Mergers and Productivity Volume Author/Editor: Steven N. Kaplan Volume Publisher: University of Chicago Press Volume ISBN: 0-226-42431-6 Volume URL: http://www.nber.org/books/kapl00-1 Conference Date: January 16-18, 1997 Publication Date: January 2000
Chapter Title: A Clinical Exploration of Value Creation and Destruction in Acquisitions, Organizational Design, Incentives, and Internal Capital Markets Chapter Author: Steven N. Kaplan, Mark Mitchell, Karen Wruck Chapter URL: http://www.nber.org/chapters/c8651 Chapter pages in book: (p. 179 - 238)
A Clinical Exploration of Value Creation and Destruction in Acquisitions Organizational Design, Incentives, and Internal Capital Markets Steven N. Kaplan, Mark L. Mitchell, and Karen H. Wruck
This paper attempts to further our knowledge of the sources of value creation and destruction in acquisitions. Prior work by economists consists primarily of large sample studies that provide mixed, incomplete, and sometimes conflicting evidence. Furthermore, these studies typically do not attempt to identify the organizational mechanisms and management practices that affect changes in productivity and performance. In this paper, we ask two questions. First, when, how, and why is value created or destroyed in mergers and acquisitions? Second, how well do large sample performance measures reflect the underlying economics of acquisitions? To answer these questions, we present clinical analyses of two acquisitions: Cooper Industries’ acquisition of Cameron Iron Works in 1989 and Premark’s acquisition of Florida Tile (formally known as Sikes Corporation) in 1990. These acquisitions were selected because they received very different stock price responses at the time of their announceSteven N. Kaplan is the Neubauer Family Professor of Entrepreneurship and Finance at the Graduate School of Business...