The impact of mergers on aggregate productivity: an empirical analysis using productivity decomposition

Abstract This study examines the impact of mergers on aggregate productivity by focusing on the reallocation of resources from firms exiting through a merger to incumbent firms. To this end, we decompose aggregate productivity growth in Japan into the contribution of different exit modes such as bankruptcy, closure, and merger using a large panel dataset of Japanese firms. We find the following. First, the performance of firms that exit through a merger is on average better than that of incumbents, meaning that exit through a merger has a negative effect on aggregate productivity. Second, we find that mergers have a positive impact on the productivity growth of acquirers. Third and most importantly, given that this positive effect on acquirers is larger than the negative exit effect of the exit of merger targets, the reallocation of resources from the acquired firm to the acquiring firm through a merger has a positive effect on aggregate productivity growth in Japan.