Acquisitions, Productivity, and Profitability: Evidence from the Japanese Cotton Spinning Industry

Abstract

We explore how changes in ownership and managerial control affect the productivity and profitability of producers. Using detailed operational, financial, and ownership data from the Japanese cotton spinning industry at the turn of the last century, we find a more nuanced picture than the straightforward "higher productivity buys lower productivity" story commonly appealed to in the literature. Acquired firms' production facilities were not on average less physically productive than the plants of the acquiring firms before acquisition, conditional on operating. They were much less profitable, however, due to consistently higher inventory levels and lower capacity utilization-differences which reflected problems in managing the uncertainties of demand. When purchased by more profitable firms, these less profitable acquired plants saw drops in inventories and gains in capacity utilization that raised both their productivity and profitability levels, consistent with acquiring owner/managers spreading their better demand management abilities across the acquired capital.

Emissions Trading and Productivity: Firm-Level Evidence from German Manufacturing

“…7 I follow the procedure applied by Braguinsky, Ohyama, Okazaki, and Syverson (2015) and employ a two-step approach in order to investigate the effect of the EU ETS on firm specific productivity changes.…”

“…Criscuolo and Martin (2009) steel industry. Braguinski, Ohyama, Okazaki, and Syverson (2015) investigate the effect of merger on productivity. All these studies feature the inclusion of additional production determinants into the first order Markov process that governs the productivity dynamics.…”

Evidence for the Effects of Mergers on Market Power and Efficiency

“…Finally, we provide evidence on the effects of M&As on other possible channels of efficiency gains -reallocation of production across plants within the firm and rationalization of headquarter services -before concluding. 7 The exceptions of which we are aware are Jaumandreu (2004), which found some efficiency effects from M&A activity in the Spanish banking industry, Braguinsky et al (2015), which examines the effect of acquisitions on productivity and profitability in the Japanese cotton spinning industry, and Kulick (2015), which finds positive effects on both prices and efficiency resulting from horizontal mergers in the concrete industry using output data measured in physical units of quantity. 8 Bertrand and Zitouna (2008) also examine the impact of M&A activity on profits, but use accounting data on earnings, which can be affected by changes in accounting practices after an M&A transaction.…”

Knowledge diffusion and industry growth: the case of Japan’s early cotton spinning industry

“…In Braguinsky, Ohyama, Okazaki, and Syverson (2015) we examine the role played by mergers and acquisitions in improving plant-level productivity and profitability during the industry consolidation phase in the first two decades of the 20 th century. In Braguinsky and Hounshell (2015b) coevolution of the industry and the firms comprising it is examined from strategic management point of view through several stages of industry evolution.…”

“…The capital to labor ratios are by this time remarkably similar across all categories of firms and while the female to male operatives ratio is statistically higher in firms with sources of knowledge from college-educated engineers as compared to all other firms (and lower in Ishikawa-advised firms), the difference is much less in magnitude than it was in 1893 (Table 5 above) and economically is no longer significant. There is no economic or statistical difference across different firm categories in terms of total factor productivity in 1898 either, which is also a reflection of uniform technological practices as well as capital vintage differences (whereby newer entrants were able to take advantage of opportunities provided by imported raw cotton and order faster and more versatile machines for their mills--see Braguinsky, Ohyama, Okazaki, and Syverson, 2015).…”