Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants

We analyze acquisitions in US power plants by using rich data on hourly productivity and thousands of ownership changes. We find a 2% average increase in efficiency for acquired plants, beginning 5 months after acquisition. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements.