Plant Size, Nationality, and Ownership Change

Abstract

This paper asks whether the motivations behind mergers manifest themselves in different ways across small versus large plants, and between foreign- and domestic-owned plants. The sample consists of all the manufacturing plants in Canada between 1973 and 1999 and is divided into size quartiles by industry and grouped into foreign- and domestic-owned producers. We find that characteristics that are postulated to be associated with the type of synergy upon which ownership changes rely are found to be important factors leading to plant ownership changes across most size classes. However, the importance of synergies increases across size classes in domestic plants. Foreign-owned plants are more likely to experience control changes than domestic plants across all size classes. These differences are closely related to the characteristics possessed by foreign plants that offer takeover synergies. There is also evidence of a managerial failure motive for mergers in the foreign sector that is not found in the domestic sector.

Key Words:

• Plant Size
• Ownership Changes
• Foreign Ownership

JEL classifications:

• F23
• L25

Notes

1. Similar results have been reported for the United States (Doms and Jensen, 1998), for the UK (Conyon et al., 2002), and for Indonesia (Takii, 2004).

2. In this study, the terms domestic owned and Canadian owned are used interchangeably.

3. We make use of our variables in relative form to deal with the lack of special price data for each plant. A similar methodology is employed in Bailey et al. (1992), Baldwin (1992), Christensen et al. (1981), Bartlesman and Dhrymes (1992), McGuckin and Nguyen (1995), and Olley and Pakes (1996).

4. See Baldwin et al. (2002) for a study of plant-level diversification and a discussion of the Herfindahl measure of product diversification.

5. Value added is the value of sales minus the value of purchases of intermediate goods and services.

6. See Baldwin and Rafiquzzaman (1994) for a discussion of the methodology used to create these groupings.

7. “nlcom” is a Stata routine for nonlinear combinations of estimators. It computes point estimates, standard errors, test statistics, significance levels, and confidence intervals for (possibly) nonlinear combinations of parameter estimates after any Stata estimation command. Results are displayed in the usual table format used for displaying estimation results.

8. During the period, the file was essentially a census of all plants – with the smallest plants being covered with administrative tax files. It is only post-2003 that the file has become a sample survey. In the survey, plants are asked for the following information: value added, shipments, production workers, nonproduction workers, nationality of owners, cost of materials, cost of heat and energy, among others.

9. For further descriptions of the file, see Baldwin (1995) and Baldwin et al. (2002).

10. We thank our referee for this suggestion.

11. The ASM data do not have information on plants’ capital stock or investment, and thus we were not able to calculate total factor productivity as an alternative way to conduct the robustness tests.

12. Coefficients on the probit regressions are available from Yanling Wang upon request.