Journal of Financial Economics 31 (1992) 135-175. North-HollandDoes corporateafter mergers?*performance improvePaul M. HealyMassachusetts Institute of Technology, Cambridge, MA 02139, USAKrishna G. Palepu and Richard S. RubackHaward Business School, Cambridge, h&l 02163, USAReceived 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 andmid-1984. Merged firms show significant improvements in asset productivity relative to theirindustries, leading to higher operating cash flow returns. This performance improvement isparticularly strong for firms with highly overlapping businesses. Mergers do not lead to cuts inlong-term capital afld R&D investments. There is a strong positive relation between postmergerincreases in operating cash flows and abnormal stock returns at merger announcements,indicating that expectations of economic improvements underlie the equity revaluations of themerging 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 acquiringand target firms, and explores the sources of merger-induced changes in cashflow performance. Our research is motivated by the inability of stock priceWe acknowledge the helpful comments of the referee, Michael Jensen (the editor), RobinCooper, George Foster, Robert Kaplan, Richard Leftwich, Mark Wolfson, Karen Wruck, andseminar participants a’r Baruch College, Carnegie Mellon University, Columbia University,Dartmouth College, Duke University, the Federal Reserve Bank (Washington, DC), HarvardUniversity, the London School of Economics, the University of Michigan, Massachusetts Instituteof Technology, New York University, Northwestern University, the University of Minnesota,the University of Rochester, Stanford University, the University of Southern California, theUniversity of Alberta, and the U.S. Department of Justice.We are thankful to Chris Fox andKen Hao, who provided research assistance, and the International Financial Services Center atMIT and the Division of Research at the Harvard Business School for financial support.There is near-unanimous agreement that target stockholders benefit frommergers, as evidenced by the premium they receive for selling their shares.Stock price studies are also unable to provide evidence on the sources ofany merger-related gains. Yet differences of opinion about the source of thegains in takeovers underlie much of the public policy debate on theirdesirability. 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 asoperating 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 inpostmerger 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 isachieved at the expense of the merged firms’ long-term viability, since thesample firms maintain their capital expenditure and R&D rates in relation to their industries. Our results differ from the findings reported by Ravenscraftand Scherer (1987) and Herman and Lowenstein (1988), who examine earningsperformance after takeovers and conclude that merged firms have nooperating improvements.2. Experimental design2. I. SampleThe analysis in this study is based on the largest 50 acquisitions during theperiod January 1979 to June 1984. We limit the number of acquisitionsstudied to make the hand data collection tasks manageable. The largestacquisitions have several important advantages over a similarly sized randomsample. First, although the sample consists of a small fraction of the totalacquisitions in the sample period, the total dollar value of the 59 firmsselected accounts for a significant portion of the dollar value of domestic138 P. Heal’! et al., Performance improcnements after mergersmerger activity4 Second, if there are economic gains from a takeover, theyare most likely to be detected when the target firm is large. Third, it is lesslikely that the acquirers in the sample undertake equally large acquisitionsbefore or after the events we study, reducing the probability of confoundingevents. Finally, public concern about the consequences of takeovers is typicallytriggered by the largest transactions, making them interesting in theirown right.A summary of the sample is provided in the appendix. The informationprovided includes target and acquiring firms’ names, a description of theirbusinesses and industries from Value Line reports, target equity v&ue beforethe merger, the target’s assets as a percentage of the acquirer’s assets, andthe merger completion date. The sample targets and acquirers represent awide cross-section of Value Line industries. The target firms belong to 24industries; the acquiring firms come from 33 industries.P. Healy et al., Performance improvements after mergers 139The sample acquisitions are significant economic events for purchasingfirms. On average, target firms are 42% of the assets of acquirers, whereassets are measured by the book value of net debt (long-term debt, plusshort-term debt, less cash and marketable securities) plus the market value ofequity one year prior to the merger.2.2. Performance measurementWe use pretax operating cash flow returns on assets to measure improvementsin operating performance. Conceptually, we focus on cash flowsbecause they represent the actual economic benefits generated by the assets.Since the level of economic benefits is affected by the assets employed, wescale the cash flows by the assets employed to form a return measure that canbe compared across time and across firms.We define operating cash flows as sales, minus cost of goods sold andselling and administrative expenses, plus depreciation and goodwill expenses.This measure is deflated by the market value of assets (market value of equityplus book value of net debt) to provide a return metric that is comparableacross firms. Unlike accounting return on book assets, our return measureexcludes the effect of depreciation, goodwill, interest expense and income,and taxes.2.2.1. Effects of purchase and pooling accountingIn our sample, 38 mergers (76%) use the purchase method and theremaining 12 use the pooling of interests method. The purchase methodrestates the assets and liabilities of target firms at their current marketvalues. No such revaluation is permitted under the pooling method. Further,under the purchase method the acquirer records any difference between theacquisition price and the market value of identifiable assets and liabilities ofthe target company as goodwill, and amortizes it. No goodwill is recorded140 P.The same transaction typically results in lower postmerger earnings underpurchase accounting than under pooling. The purchase method increasesdepreciation, cost of goods sold, and goodwill expenses after the takeover.Also, in the year of the merger, earnings are usually lower under purchaseacccunting because the target’s and acquirer’s earnings are consolidated for ashorter period than under pooling.Excluding the first year also mitigates the effect of inventorywrite-ups under the purchase method, since this inventory is usually includedin cost of sales in the merger year.6 Because the asset base in our returnmetric is the market value of assets, rather than book value, it is alsounaffected 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 mergersThe method used to finance the sample transactions varies considerably.Th,,iy percent of the sample mergers are stock transactions, 26% arefinanced by cash, and the remaining 14% are financed by combinations ofcash, stock, and other securities. It is important to control for these financingdifferences in measuring postmerger performance.Since the OifIerences in earnings reflect the financing choiceand not differences in economic performance, it is misleading to comparereported accounting earnings, which are computed after interest income andexpense, for firms that use different methods of merger financing. We useoperating cash flows before interest expense and income from short-terminvestments 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 benchmarkWe aggregate performance data of the target and bidding firms before themerger to obtain the pro forma premerger performance of the combinedfirms. Comparing the postmerger performance with this premerger benchmarkprovides 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 thedifference between premerger and postmerger performance could be alsodue to economywide and industry factors, or to a continuation of firm-specificperformance before the merger. Hence, we use abnormal industry-adjustedperformance of the target and bidding firms as our primary benchmark toevaluate postmerger performance.Abnormal industry-adjusted performance is measured as the intercept of across-sectional regression of postmerger industry-adjusted cash flow returnson the corresponding premerger returns. For each year and firm, industryadjustedperformance measures are calculated by subtracting the industrymedian from the sample firm value. Compustat Industrial and Research files.2.4. Comparison with prior researchEarlier studies of postmerger performance have a number of methodologicalproblems, making their findings difficult to interpret. Ravenscraft andScherer (I987) examine the performance in 1974 to 1977 for firms acquiredbetween 1950 and 1977. Since the postmerger years examined are not alignedwith the merger, it is hard to know what to make of the performancecomparisons.Further, the return on equity measure, which is used to judge postmergerperformance, does not control for differences in pooling and purchaseaccounting, methods of merger financing, or the effect of common industryshocks. These limitations make it diflicult to interpret the study’s findings.3. Cash flow return performance3.1. Operating cash flow returnsAs described in section 2, we aggregate pretax operating cash flows for thetarget and acquiring firms to determine pro forma cash flows for the combinedfirms in each of the five years before the merger (years – 5 to – 1).Postmerger operating cash flows are the actual values reported by themerged firm in years I to 5. We deflate the operating cash flows by themarket value of assets. Operating cash flow returns are the ratio of operatingcash flows during a given year to the market value of assets at the beginningof that year. The market value of assets is recomputed at the beginning ofeach year to control for changes in the size of the firm over time. Forpremerger years the market value of assets is the sum of the values for thetarget and acquiring firms. The market value of assets of the combined firm isused in the postmerger years.We also adjust the merging firms’ performance for the impact of contemporaneousunrelated events by measuring industry cash flow returns duringthe same ten-year period. We use Value Line industry definitions, andexclude 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 ofthe merger, is excluded from the analysis for two reasons. First, many of theacquiring firms use the purchase accounting method, implying that inthe year of the merger the two firms are consolidated for financial reportingpurposes only from the date of the merger. Results for this year are thereforenot 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 assetsTable 1 reports the changes in cash flows and assets in years 1 to 5 relativeto the year before the merger. The merged firms have a median increase incash flows of 14% in year 1, 17% in year 2, 16% in years 3 and 4, and 9% inyear 5.Operating cash flows are sales less cost of goods sold, less selling and administrativeexpenses, 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 cashflow 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 alsoincreased during this period. Asset values increase by 15% in year 1, 20% inyear 2, 28% in year 3, 23% in year 4, and 18% in year 5. Also, the samplefirms’ industries experience growth in cash flows and assets in the postmergerperiod. The cash flow return measures we use to gauge performance adjustfor changes in the size of the sample firms and their corresponding industriesthat are evident in table 126.96.36.199. Raw cash jlow returnsPanel 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 145the postmerger period. These changes cannot be attributed to the merger,however, if there is a contemporaneous downward trend in industry cash flowreturns. Industry-adjusted returns, which are differences between values forthe merged firms and their weighted-average industry median estimates,correct for this problem.3. I .3. Industry-adjusted cash flow returnsColumns 3 and 4 in panel A, table 2 show median industryadjustedcash flow returns and the percentage of sample firms with positiveindustry-adjusted returns. Merged firms have higher operating cash flowreturns on assets than their industries’ in the postmerger period. Medianindustry-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 differentfrom zero! Year 5 also shows better performance than the industry, but isnot statistically significant.The benchmark for the significant postmerger industry-adjusted returnsdepends on the relation between industry-adjusted returns before andafter 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 postmergerindustry-adjusted returns, the appropriate benchmark for the postmergerindustry-adjusted returns is zero. Alternatively, the appropriate benchmark isthe premerger industry-adjusted return if firms that perform above or belowtheir industries before the merger are likely to realize the same performanceafter the merger.For our sample, there is no evidence of superior industry-adjusted pretaxoperating cash flow returns in the premerger period, Median returns are notsignificantly different from zero in four of the five years. The percentage ofpositive industry-adjusted returns is r,at significantly different from the valueexpected by chance in four of the five years before the merger. The overallmedian annual return in the premerger period is only 0.3%, which isstatistically insignificant. This suggests that, on average, the postmergerperformance is not due to a continuation of superior premerger industryperformance. In the next section we use a cross-sectional regression approachto compare performance before and after the merger.3.1.4. Abnormal industry-adjusted cash flows returnsOur measure of abnormal industry-adjusted returns extends the industryadjustedreturn measure to incorporate the relation between pre- and postmergerindustry-adjusted returns. Abnormal industry-adjusted cash flowreturns are estimated using the following cross-sectional regression:Our measure of the abnormal industryadjustedreturn is the intercept cy from (1). The slope coefficient p capturesany correlation in cash flow returns between the pre- and postmerger yearsAs 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 postmergercash flow returns after premerger performance is controlled for. This evidenceindicates that there is a significant improvement in the merged firms’cash flow returns in the post-merger period.”3.2. SensitiGty analysis3.2.1. Use of Value Line industry definitionsThe industry-adjusted results are strikinglycash flow returns before industry adjustment.different from the operatingThe industry-adjusted resultsshow a significant increase in postmerger performance and the unadjustedreturns show a decrease. We think that industry-adjusted returns are a morereliable measure of performance, since they control for industry eventsunrelated to the merger. But, they are also sensitive to the definitions ofindustries used in the analysis. To test whether the industry-adjusted resultsare 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 flowreturns for the sample firms are 1.3% (statistically insignificant) in the“‘These results remain unchanged when we reestimate the model excluding outlier observationsidentified using Belsley, Kuh, and Welsch (1980) influence diagnostics. We also conductspecification tests for regression equation (1) to assess whether the residuals are homoskedasticsee White (1980)]an d normally distributed, We cannot reject the hypotheses that the residualsare homoskedastic and normally distributed at the 5% level.148 P. Healy et al., Performance improcements after mergerspremerger period and 4.3% (statistically significant) in the postmerger years,confirming improvements in industry-adjusted performance.3.2.2. Change in market value of assetsOur measure of industry-adjusted returns can increase in the postmergerperiod if investors lower their assessment of merged firms’ prospects inrelation to their industries. Since we use the market value of equity in ourcomputation of asset values, a postmerger decline in equity value will reduceour 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 inasset values would lead to an increase in cash flow returns, making thepostmerger improvements documented in the previous section spurious. Toexamine this possibility, we compute the difference between annual stockreturns for the sample firms and their industries in years surrounding themerger.Summary statistics on equity returns in years surrounding the merger arereported in table 3. We compute both raw equity returns and industryadjustedreturns for years -5 to – 1 and 1 to 5 using Compustat data.Consistent with the evidence reported in the literature, the median returnsin the preannouncement and announcement periods in year 0 are -3.0%and 7.7%, which are statistically significant. There is no evidence that themarket value of equity for the sample firms declines in comparison with theirindustries in the postmerger period. Median industry-adjusted returns areinsignificant in the postmerger period in years 0 to 4, and are significantlypositive in year 5. Mean industry-adjusted returns, which are not reportedhere, are comparable to the sample medians.3.2.3.For acquirers, the merger announcement period is the detefrom the first announcement of a takeover offer by the acquirer to the date a merger iscompleted. 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. Postmergerperformance measures use data for the merged firms. Industry-adjusted returns are computedfor each firm and year as the difference between the sample-firm value in that year and medianvalues 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 ofyear 1, we start with the total market equity value for the target and acquirerat the beginning of year – I.Both these limitations are avoided by the market value of assets used in ouroriginal cash flow return measure.The computation of quasi-market value of assets begins with marketvalues 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 themerged firm. Industry-adjusted cash flow returns are computed for each firm and year as thedifference between the sample-firm value in that year and median values for other firms inthe same industry (as defined by Value Line in year – 1).3.3. Components of industry-adjustedw sh flow returnsThe improvements in cash flow returns in the postmerger period can arisefrom a variety of sources. These include improvements in operating margins,greater asBet productivity, or lower labor costs. Alternatively, they may beachieved by focusing on short-term performance improvements at the expenseof the long-term viability of the firm. In this section we provideevidence on which of these sources contribute to the sample firms’ postmergercash flow return increases. The specific variables analyzed are italicizedin the text and defined in table 5. The results are reported in tabie 188.8.131.52. Operating performance changesThe operating cash flow return on assets can be decomposed into cash flowmargin on sales and asset turnover. Cash flow margin on sales measures thepretax operating cash flows generated per sales dollar. Asset turnover measuresthe sales dollars generated from each dollar of investment in assets.The variables are defined so that their product equals the operating cash flowreturn on assets.l2 We again conduct specification tests for (1) to assess whether the residuals are homoskedasticsee While U930); acid normally distributed. We cannot reject the hypotheses that theresiduals are homoskedastic and normally distributed at the 5% level.The results in table 6 suggest that the increase in industry-adjustedoperating returns is attributable to an increase in asset turnover, rather thanan increase in operating margins. In years -5 to – 1 the merged firms haveindustry-adjusted median asset turnover of -0.2, implying that they generated20 cents less in sales than their competitors for each dollar of assets. Inyears 1 to 5 they close this gap as they achieve asset turnovers comparable totheir industries’.After the merger the pensionexpense of the merged firms is reduced to the industry level. There are twoways to view these findings. One interpretation is that mergers are followedby improvements in operating efficiency achieved through reduced laborcosts. Alternatively, mergers lead to a wealth redistribution between employeesand stockholders through renegotiations of explicit and implicit employmentcontracts. Whatever the explanation, the labor cost reductions in thepostmerger period do not appear to be large, since they do not lead tosignificant changes in postmerger operating margins.;”3.3.2. Inrestmen t policy changesSince our analysis is limited to five years after the merger, we cannotprovide direct evidence on cash flows beyond this period. To assess whetherthe merged firms focus on short-term performance improvements at theexpense of long-term investments, we examine their capital outlays andresearch and der:eZopment (R&L D) expense. These expenditure patterns arereported in table 6. The median capital expenditures as a percentage ofassets 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% inyears 1 to 5. The capital expenditures and R&D of the sample firms are notsignificantly different from those of their industry counterparts in either thepre- or the postmerger period.‘“Pontiff, Shleifer, and Weisbach (1990) report that 11% of takeovers involve pension fundreversions, accounting for lo-13% of takeover premiums in these transactions. Thus for theirsample as a whole pension fund reversions ac,‘otint for an average l-2% of the takeoverpremium.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 stockmarket capitalizes expected improvements, there should be a significantpositive correlation between the stock market revaluation of merging firmsand the actual postmerger cash flow improvements.4.1. Stock returns at merger announcementsMarket-adjusted stock returns for the target and acquirer at the announcementof the merger are reported in pase! A. of table 7.‘” Returns for thetarget are measured from five days before the first offer is announce“Risk-adjusted returns, computed using premerger market model estimates, are similar to tmarket-adjusted returns reported in the paper.158 P. Healy et al., Performance improcements after mergersnecessarily by the ultimate acquirer) to the date the target is delisted fromtrading on public exchanges. Returns for the acquirer are measured from fivedays before its first offer is announced to the date the target is delisted fromtrading on public exchanges. Much as earlier studies have found, targetshareholders earn large positive returns from mergers (mean 45.6% andmedian 44.8%), and acquiring stockholders earn insignificant returns.We also compute the aggregate market-adjusted return for the two firms inthe merger announcement period.4.2. Asset returns at merger announcementsOur tests examine whether the change in equity values at merger announcementscan be explained by cash flow return improvements in thepostmerger period. In section 3 we measured postmerger performance usingcash flow return on assets, whereas the merger announcement returnscomputed above are returns on equity. Therefore, before we correlatemerger announcement returns and postmerger cash flow improvements, wecompute 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 arecomparable.160 P. Healy et al., Performance improcem?pnts after mergersAlthough (6) does not have a constant, we estimate a regression equationwith an intercept and test whether it is zero.The regression results are shown in panel C of table 7. The estimatedmodel has an R* of 30%.There are two interpretations of the statistically and economically significantrelation between our measure of postmerger performance improvementsand the market’s revaluation of the merged firms’ equity at the mergerannouncement. First, if equity markets are efficient, the findings indicate thatour estimates of postmergcr performance are reasonable. Alternatively, thefindings can be viewed as evidence that the stock price gains at the mergerannouncement are related to expectations of subsequent cash flow improvements.5. DiscussionOur finding that there are postmerger cash flow increases advances thedebate on mergers from whether there are cash flow changes after thesetransactions to why these cash flow improvements OCC~L The improvementsin samb’e firms’ cash flow returns are primarily a result of increased assetSpecification tests are conducted for (6) to assess whether the residuals are homoskedasticsee White (1980)] and normally distributed. We cannot reject the hypotheses that the residualsare homoskedastic and normally distributed at the 5% level. We also reestimated the regressionexcluding observations more than two standard deviations from the mean for each variable. Theresults are very similar to those reported. Finally, we estimate Spearman rank correlationcoefficients between the median annual postmerger industry-adjusted cash flow return andunexpected asset returns at the merger announcement. The correlation is 0.41 and is significantat the 1% level.These questions, which have important managerial and public policy implications,can be answered only through development of structural models ofhow mergers improve cash flows. We do not attempt to undertake such anambitious exercise in this paper, but, we do provide some preliminaryevidence and suggest directions for future research.5. I. Business orlerlap of merging firms and postmerger performanceOne popular hypothesis on how mergers improve cash flows is that theyprovide opportunities for economies of scale and scope, synergy, or productmarket power. This implies that mergers by firms that have overlappingbusinesses will show greater cash flow improvements than mergers betweenfirms with no overlap. We examine this proposition by classifying our samplemergers as those with high, medium, and low business overlap between thetarget and acquiring firms. This classification is made by reading the line ofbusiness 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 BestProducts and Modern Merchandising, both of which are catalog showroomretailers, is classified as a high overlap transaction. The merger betweenHoliday Inns and Harrahs is treated as a transaction with medium overlapbecause Holiday Inns operates a hotel chain and arrahs operates casinos162 P. Hea!:) et al., Performance improL*ements after mergersand associated hotels.HIGH is adummy variable that is one if the target and acquirers are in highly overlappingbusinesses and zero otherwise, and MEDIUM is a dummy variable thatis 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 performanceTransaction characteristics, such as the form of financing, whether thetransaction is hostile or friendly, and the size of the target firm, are frequentlycited as important to the ultimate success of mergers. We usepostmerger cash flow returns for different types of transactions to examineeach of the hypotheses associated with these characteristics. We estimate across-sectional regression similar to (7) with dummy variables representingthe form of financing and find no significant postmerger performance differencesbetween transactions financed with equity, cash, or a mixture ofsecurities.In summary, while there is some evidence that the degree of businessoverlap between merging firms influences postmerger performance, there islittle evidence that transaction characteristics have a significant impact.20 Weview our analysis on the determinants of postmerger performance as Greliminary,however, since our study is designed to examine whether performanceimproves after a merger.Given the complexity and heterogeneity of reasons for mergers, we believethat large-sample studies will provide limited new insights into factors thatinfluence the outcomes of mergers. A promising approach is to examine asmaller number of mergers in greater detail. These clinical studies canprovide valuable evidence on the mechanisms through which mergers increasecash flows, and are likely to be fruitful avenues for future research.6. SummaryThis paper examines the post-acquisition operating performance of mergedfirms using a sample of the 50 largest mergers between U.S. public industrialfirms completed in the period 1979 to mid-1984 We develop a methodologyto deal with a number of measurement issues that arise in studying theconsequences of takeovers. Further, we integrate accounting and stock returndata in a consistent fashion to permit richer tests of corporate controltheories. This general approach has been adopted by several recent studies toexamine mergers and acquisitions – Tehranian and Cornett (1991) andLinder and Crane (1991) analyze performance in bank mergers, and Jarrell(1991) investigates postmerger performance using analysts’ forecasts of salesmargins.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 inoperating cash flow returns after the merger, resulting from increases in assetproductivity relative to their industries. These improvements are particularlystrong for transactions involving firms in overlapping businesses. Postmergercash flow improvements do not come at the expense of long-term perfor-“‘The findings on the relation between transaction characteristics and postmerger performanceare 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 105mance, since sample firms maintain their capital expenditure and R&D ratesrelative to their industries after the merger.ReferencesAsquith, Paul, 1983, Merger bids, uncertainty, and stockholder returns, Journal of FinancialEconomics 11,s l-84.Asquith, Paul and E. Han Kim, 1982, The impact of merger bids on participating firms’ securityholders, Journal of Finance 37, 1209- 1228.Asquith, Paul, Robert Bruner, and David Mullins, 1988, Merger returns and the form offinancing, Working paper (MIT Sloan School, Cambridge, MA).Baker, George and Karen Wruck, Organizational changes and value cle?ion in leveragedbuyouts: The case of The O.M. Scott & Sons Cumpany, Journal of Financial Economics 25,163- 190.Belsley, David, Edwin Kuh, and Roy Welsch, 1980, Regression diagnostics (Wiley, New York,NY).Bradley, Michael, Anand Desai, and E. Han Kim, 1983, The rationale behind interfirm tenderoffers: Information or synergy?, Journal of Financial Economics 11, 183-206.Bradley, Michael, Anand Desai, and E. Han Kim, 1988, Synergistic gains from corporateacquisitions and their division between the stockholders of target and acquiring firms,Journal of Financial Economics 21, 3-40.Bull, Ivan, 1988, Management performance and leveraged buyouts: An empirical analysis,Unpublished paper (University of Illinois at Urbana-Champaign, IL).Caves, Richard, 1989, Takeovers and economic efficiency: Foresight vs. hindsight, InternationalJournal of Industrial Organization 7, 151- 174.Dodd, Peter, 1980, Merger proposals, management discretion and stockholder wealth, Journal ofFinancial Economics 8, 105 – 138.P. Healy et al., Performance irnprol*ements after mergers 175Dodd, Peter and Richard Ruback, 1977, Tender offers and stockholder returns: An empiricalanalysis, Journal of Financial Economics 5, 35 l-374.Donaldson, Gordon, Voluntary restructuring: The case of General Mills, Journal of FinancialEconomics 27. 117- 142.