Using a sample of completed U.S. acquisition deals over the period 1984–2014, we find that acquirer organization capital as measured by capitalized selling, general, and administrative (SG&A) expenses is associated with superior deal performance. We show that high organization-capital acquirers achieve significantly higher abnormal announcement period returns, and better post-merger operating and stock performance, than low organization-capital acquirers. Additional tests suggest a causal relation between acquirer organization capital and deal performance. We further show that post-merger, high organization-capital acquirers cut more on the cost of goods sold, invest more in SG&A expenses, and achieve greater asset turnover and innovative efficiency.
We thank Kenneth Ahern, Bruce Carlin (the referee), Ming Dong, Marion Dupire-Declerck, Espen Eckbo, Andrea Eisfeldt, Wayne Ferson, Xian Gu, Jarrad Harford, Jerry Hoberg, Martin Jacob, Andrew Karolyi, Simi Kedia, Jin-Mo Kim, Bart Lambrecht, Paul Malatesta (the editor), Alberto Manconi, Harold Mulherin, Jeff Netter, Georgios Papanastasopoulos, Graham Partington, Neil Pearson, Gordon Phillips, Elena Pikulina, Luc Renneboog, Terry Walter, Jin Wang, Fangming Xu, Ting Xu, Pradeep Yadav, Hongjun Yan, Feng Zhang, and seminar participants at the Cheung Kong Graduate School of Business, Chinese University of Hong Kong, Erasmus University Rotterdam, Hong Kong University of Science and Technology, Nanyang Technological University, Rutgers University, Shanghai University of Finance and Economics, Singapore Management University, University of Amsterdam, University of Bristol, University of Georgia, University of Groningen, University of Illinois at Urbana–Champaign, University of Southern California, University of Sydney, PBC School of Finance, Peking University, Tilburg University, Tsinghua University, VU University Amsterdam, WHU – Otto Beisheim School of Management, and York University, and conference participants at the 2014 Center for the Economic Analysis of Risk (CEAR) Conference on Corporate Control Mechanisms and Risk, the 2014 Belgium Financial Research Forum, the 2014 European Accounting Association Annual Meetings, the 2016 Edinburgh Corporate Finance Conference, and the 2016 Financial Management Association Asia Pacific Conference for helpful comments. We also thank our research assistants Alice Guo, Julie Shin, Ting Xu, Tan Ren Xuan, and Nicholas Yoong. Li acknowledges financial support from the Social Sciences and Humanities Research Council of Canada, the Undergraduate International Student Research Assistant Program at the University of British Columbia, and the Sauder School of Business Bureau of Asset Management. All errors are our own.
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