Beyond profitability: effects of acquisitions on technical efficiency in the Italian pasta industry

Unlike traditional studies on the impact of ownership changes – which use either profitability measures or stock prices – this paper investigates the impact of acquisitions on acquired firms’ technical efficiency. Using a panel of Italian firms in the pasta industry for the 1981-1997 period, I estimate a stochastic production frontier with exogenous factors affecting efficiency in a translog specification with non-neutral technical progress. The main result is that acquired firms experience, within the six years period following the acquisition, an increase in technical efficiency of the order of 10%. This result is statistically significant and proves to be robust with respect to the inclusion of size and calendar year effects as explanatory variables of firms’ inefficiency. These findings contribute to the debate on the welfare gains of ownership changes by providing evidence that mergers and acquisitions lead to cost savings, due to the reduction of acquired firms’ X-inefficiency. JEL: L40, L66.