Steve Thompson

The Productivity and Wage Effects of Foreign Acquisition in the United Kingdom

This paper provides a systematic empirical analysis of the impact of foreign ownership on productivity and wages in the United Kingdom. Using a specially constructed database for the period 1989-94, it uses ownership change (acquisition) to control for unobserved differences between plants. It finds that foreign firms pay equivalent employees 3.4% more than domestic firms, though this is wholly attributable to their higher levels of productivity. Firms which are acquired by foreign companies exhibit an increase in labour productivity of 13%. Copyright 2002 by Blackwell Publishing Ltd

The development of the resource‐based view of the firm: A critical appraisal

Over the last 20 years, the resource-based view (RBV) has reached a pre-eminent position among theories in the field of strategy, but debate continues as to its precise nature. This paper contributes to the debate by critically reviewing the development of the RBV to date. The critical appraisal examines the development of the RBV in terms of theory, method, empirical evidence and practical insights. It is contended that the permeable and eclectic nature of the RBV stems from its being a theory about what firms are and how they function, and that its popularity is due to an absence of limiting behavioural assumptions. Finally, the authors provide their own subjective views on where they think RBV scholars should focus their efforts in the future.

The resource-based view and economics

This paper analyzes the link between economics and the resource-based view (RBV) of the firm. Although, historically there has been a strong link between the disciplines of strategy and economics, explicit citations of key RBV works has been disappointingly low in mainstream economics journals. However, there are substantial bodies of works that build implicitly on the ideas of the RBV, in particular the consequences of path dependency on firm behavior, to explain a number of different economic issues. The issues we review in the paper are all influenced by path dependency and include: (1) diversification and market entry, (2) corporate refocusing, and market exit, (3) explaining innovative activity among firms, (4) diversification and performance and (5) industry evolution with rapidly changing products. Furthermore, we identify a number of reasons that may have limited the explicit use of the RBV in economics, which include the problems of causal ambiguity, tautology and firm heterogeneity. Finally, potential areas for future research are identified, which include the interaction of the RBV and Agency Theory, the RBV as a dynamic theory, using the RBV to explain radical change and the application of the RBV to issues of antitrust.

The impact of mergers and acquisitions on company employment in the United Kingdom

Abstract This paper provides a systematic empirical analysis of the effects of take-over and merger activity on firm employment in the United Kingdom using a specially constructed database for the period 1967–1996. Our results indicate that significant rationalisations in the use of labour occur as firms reduce joint output and increase efficiency post-merger. These effects are particularly pronounced in the case of related and especially hostile mergers.

Venture capital and management-led, leveraged buy-outs: A European perspective

Abstract Management and leveraged buy-outs became phenomena of the 1980s. From beginnings in the U.S., they quickly traversed the Atlantic, spreading first to the U.K. and then throughout Europe. The venture capital industry has played a crucial role in the development of buy-outs in Europe, particularly in smaller deals in the U.K., the Netherlands, and France. This paper examines three aspects of the market for venture and development capital funded management led buy-outs in Europe. It provides a framework for analysis of the different levels of development of each countrys market, it examines performance of U.K. buy-outs and addresses the extent and nature of exits. Throughout the paper use is made of the extensive database of European buy-outs developed by the authors. The main conclusions to emerge are as follows. European experience can not be compared to that in the U.S. as a single economy. There are important differences between European countries in respect of the level of buy-out activity and the extent to which conditions are or will be favourable for the development of such transactions. Conceptually, a buy-out market may be considered as requiring three main factors to be present if it is to develop: the generation of buy-out opportunities; the infrastructure to complete a transaction; and opportunities for the investors in a buy-out to realise their gains. These broad groups may be further sub-divided. The generation of opportunities will be heavily influenced by attitudes to entrepreneurial risk and hence willingness of managers to buy, the ownership structure of industry and hence the generation of entities which are for sale and the state of development of mergers and acquisition markets. The infrastructure to complete transactions includes sources of funding both in respect of venture capital availability and the ability of banks to fund transactions, the nature of legal and taxation regimes and the existence of intermediaries and advisors who can both identify and negotiate buy-outs. The existence of suitable exit routes comprises stock market flotation, sale to another group and recapitalisation possibly through a secondary buy-out. Many of these factors are similar to the conditions necessary for venture capital deals to develop. The generation of entities for sale may take various forms with succession issues in family firms, divestment of unwanted divisions, privatization of public sector activities and going privates of companies quoted on a stock market being the most important. This framework was used to analyze European buy-out markets through a combination of interview and desk research. The evidence shows that the most highly developed buy-out markets and those with the greatest short-term potential are not necessarily to be found in the largest economies. U.S. investors, who turn towards Europe to develop their markets at a time when the U.S. buy-out market is experiencing a downturn, and European investors, seeking to broaden their activities, need to be aware of these differences. As in comparable studies in the U.S., U.K. LBOs on the evidence from our survey of 182 buyouts on average produce-performance improvements. U.K. LBOs appear to undertake a greater level of new product development and asset purchase after buy-out than do their counterparts in the U.S. and have placed less emphasis on asset disposals than U.S. LBOs. Managers buying-out frequently tightened up their control of working capital. The results of our survey indicate support for both the entrepreneurial and agency cost-reduction perspectives about buy-outs, with the former perhaps being somewhat more in evidence. Exit routes are an important aspect of the buy-out market, but evidence presented here indicates that buy-outs are unlikely to exit in the way in which they originally envisaged. In particular, buy-outs that initially were aiming for flotation on a secondary tier stock market have almost invariably been sold to third parties.

The determinants of corporate divestment in the UK

Abstract It has been widely suggested that since the early 1980s many diversified firms narrowed the scope of their activities by refocusing on their core businesses, primarily through divestment activity. This study examines the extent and determinants of divestment across a large sample of UK firms over the period 1985–1989. Divestment is analysed using both a proportions and count data (Poisson and negative binomial regressions) approach. The results confirm that corporate divestment is not merely a reflection of managerial idiosyncrasies or mean reversion behaviour in the activities undertaken, but is a purposeful response to exogenous change in a manner broadly consistent with both the agency theoretic and strategic views of the firm.

The Productivity Impact of IT Deployment: An Empirical Evaluation of ATM Introduction

The term ‘IT paradox’ has been widely used to describe the apparent failure of much economic research to discover significant productivity gains associated with IT investment. In part this has been ascribed to measurement problems associated with both IT inputs and with outputs in IT‐intensive industries. The current paper seeks to circumvent these difficulties by taking the ATM as a clearly defined embodied IT application and then using anaugmented production function approach to isolate its productivity effectsacross a sample of UK building societies, over the period of the ATM’sdiffusion. The paper finds no support for the ‘IT paradox’ and reports large robust and statistically significant productivity gains associated with ATM introduction.

The productivity effects of bank mergers: Evidence from the UK building societies

Abstract This paper presents an empirical investigation of the impact of acquisition activity on financial intermediary productivity. Specifically, it uses an augmented production function approach to investigate the impact of acquisition, after controls for input changes. The model is estimated on an unbalanced panel of 93 UK building societies over the period 1981–1993, using data on their core financial intermediation activities which, it is suggested are particularly appropriate for our purposes. In contrast to much of the existing merger literature, which for the most part uses financial performance data, our results DO indicate significant and substantial productivity gains following acquisition. These are consistent with an acquisitions process in which less efficient firms are acquired and reorganized. The post-merger gains appear to increase substantially in the post-deregulation period, when pressures to minimize cost are widely considered to have increased.

Do hostile mergers destroy jobs

This paper provides a systematic empirical analysis of the employment effects of hostile takeovers in the United Kingdom for the period 1983–1996. It finds no evidence for distinguishing between friendly and hostile acquisitions in terms of their impact on labour demand. Indeed, each type of transaction appears to have an immediate negative impact on labour demand, equivalent to about 7.5 percent of the pre-merger level. However, the paper does find that the absolute number of employees falls substantially, along with output, in the hostilemerger case alone. This appears to be the consequence of a high level of post-merger divestment that distinguishes hostile transactions.

The determinants of corporate divestment: evidence from a panel of UK firms

Abstract It is widely perceived that during the past 15–20 years a substantial number of diversified firms have disposed of their peripheral activities to concentrate upon their core businesses. This study examines the determinants of divestment using an unbalanced panel of UK firms over the period 1985–1991. Divestment is analysed using both a proportion and count data approach. The results suggest that divestment is a purposeful response to financial, corporate governance and strategic variables and, as such, appears broadly consistent with both the agency theoretic and strategic views of the firm.