Finance Seminar（2014-12）

Topic: Organization Capital and Mergers and Acquisitions

Speaker: Kai Li, University of British Columbia

Time: Monday, 12 May, 10:00-11:30

Location: Room 217, Guanghua Building 2

Abstract: Using a large sample of completed U.S. merger and acquisition (M&A) transactions over the period 1984-2011, we uncover one important source of value creation—acquirer organization capital as measured by capitalized selling, general, and administrative expense. We find that acquirers with more organization capital achieve significantly higher abnormal announcement period returns, and better post-merger operating and stock performance than acquirers with less organization capital. Postmerger, high organization-capital acquirers cut more on cost of goods sold, selling, general, and administrative expense, and reduce more leverage than do low organization-capital acquirers. We further find that the effect of acquirer organization capital on deal performance is stronger when the acquirer has a high status or is a serial acquirer. Our main findings are robust to different measures of organization capital and endogeneity concerns. We conclude that organization capital is one important means to realize merger gains.