Firm growth in the course of mergers and acquisitions
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This paper examines the effect of mergers and acquisitions on employment growth in newly acquired firm establishments. Based on a unique full sample of manufacturing and services firms in Switzerland, our main finding is that the relative size of a deal is an important growth determinant: While the initial size of the acquiring firm is positively related to an acquired establishment’s growth, the opposite holds true for the initial size of the acquisition. We also contribute to a controversial debate on firm growth in general by rejecting Gibrat’s law of proportionate growth for firm establishments in Switzerland. In fact, employment growth decreases with an establishment’s initial size and age—at the aggregate level as well as within separate subsamples of manufacturing and services firms.
KeywordsFirm growth Employment Gibrat’s law Mergers and acquisitions Deal size Establishment-level data Switzerland
JEL Classifications:G34 L11 L25 M51 L26
We thank Stefan Buehler, Simon Evenett, Christina Felfe, Klaus Gugler, Giovanni Mellace, Farzad Saidi, Philip Schuster, Conny Wunsch, two anonymous referees, as well as seminar participants at the University of St. Gallen, ETH Zurich, the Swiss IO Day 2010 (Bern), the IIOC 2011 (Boston), and the EEA-ESEM Congress 2011 (Oslo) for helpful comments. We also thank the Swiss Federal Statistical Office for providing their Business Census data through Contracts No. 08350 and 140146. Financial support from the Swiss National Science Foundation through Grants No. PP0011-114754 and PBSGP1-138787 is gratefully acknowledged.
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