Do mergers improve managerial performance?

Extant studies of mergers and acquisitions have relied on stock price reactions to evaluate the impact of these events. In this paper, we analyze the performance of the Healy et al. (1992) sample over a ten year period using a managerially controlled efficiency measure, data envelopment analysis (DEA). Our individual firm-level year-by-year analyses results indicate that the managerial performance of the merged firms generally improved in the post-merger period as predicted in the earlier theoretical studies of mergers and acquisitions. However, there were also a significant number of cases where we could not observe improved managerial efficiency using this less aggregated approach. We conclude that DEA based clinical approaches will be the future direction to pursue for merger studies with an interest in yearly or even quarterly managerial performance at the individual firm level (and not at the aggregate level as document by earlier merger studies). DEA because of its individual firm level and yearly (or even quarterly) analysis avoids many of the problems of pooled cross-sectional regression analysis.