Organization Capital and Mergers and Acquisitions

92 Pages Posted: 20 Oct 2014 Last revised: 14 Feb 2017

See all articles by Kai Li

Kai Li

University of British Columbia (UBC) - Sauder School of Business; Asian Bureau of Finance and Economic Research (ABFER); China Academy of Financial Research (CAFR); European Corporate Governance Institute (ECGI); Canadian Sustainable Finance Network (CSFN)

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Rui Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics; Shenzhen Finance Institute

Date Written: February 14, 2017

Abstract

Using a sample of completed U.S. merger and acquisition (M&A) transactions over the period 1984-2014, we find that acquirer organization capital as measured by capitalized selling, general, and administrative (SG&A) expenses is associated with superior deal performance. We show that high organization-capital acquirers achieve significantly higher abnormal announcement period returns, and better post-merger operating and stock performance, than low organization-capital acquirers. Additional tests suggest a causal relation between acquirer organization capital and deal performance. We further show that post-merger, high organization-capital acquirers cut more on the cost of goods sold, invest more in SG&A expenses, and achieve greater asset turnover and innovative efficiency.

Keywords: corporate acquisitions, organization capital, SG&A, cost-cutting, asset turnover, innovative efficiency, withdrawn bids

JEL Classification: G34

Suggested Citation

Li, Kai and Qiu, Buhui and Shen, Rui, Organization Capital and Mergers and Acquisitions (February 14, 2017). Available at SSRN: https://ssrn.com/abstract=2511675 or http://dx.doi.org/10.2139/ssrn.2511675

Kai Li (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Canadian Sustainable Finance Network (CSFN) ( email )

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Buhui Qiu

University of Sydney Business School ( email )

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Financial Research Network (FIRN)

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Rui Shen

The Chinese University of Hong Kong, Shenzhen - School of Management and Economics ( email )

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Shenzhen, 518172
China

Shenzhen Finance Institute ( email )

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