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The Industry Life Cycle, Acquisitions and Investment: Does Firm Organization Matter?




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      Maksimovic is with University of Maryland and Phillips is with University of Maryland and NBER. This research was supported by National Science Foundation grant 0218045. We would like to thank Mike Lemmon, Harold Mulherin, Sheri Tice, Bernie Yeung, the referee, Center for Economic Studies staff, and seminar participants at the American Finance Association meetings, Duke-UNC corporate finance conference, Financial Economics and Accounting conference at USC, 2005 Frontiers in Finance Conference, George Washington, HKUST, Minnesota, NYU, Oxford, Pittsburgh, Rice, Tanaka School, Texas, UBC, UCLA, and Wharton. The research in this paper was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Center for Economic Studies. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the Census Bureau. This paper has been screened to ensure that no confidential data are revealed.


We examine the effect of industry life-cycle stages on within-industry acquisitions and capital expenditures by conglomerates and single-segment firms controlling for endogeneity of organizational form. We find greater differences in acquisitions than in capital expenditures, which are similar across organizational types. In particular, 36% of the growth recorded by conglomerate segments in growth industries comes from acquisitions, versus 9% for single-segment firms. In growth industries, the effect of financial dependence on acquisitions and plant openings is mitigated for conglomerate firms. Plants acquired by conglomerate firms increase in productivity. The results suggest that organizational forms' comparative advantages differ across industry conditions.

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