This dissertation consists of three essays.
In the first essay, I document novel empirical facts at the aggregate and the firm level on the reallocation of tangible and intangible capital. First, at the aggregate level, I interpret firm physical capital sales data as tangible capital reallocation and data on mergers and acquisitions (M\&As) data on intangible capital reallocation. I document the cyclicality patterns of the reallocation of both forms of capital. I show that in recessions, the correlation of intangible capital reallocation with GDP is greater than the correlation of tangible capital reallocation with GDP but in booms, the correlation of both types of capital reallocation with GDP are the same. I interpret this result as suggestive evidence that tangible capital serves a collateral motive which intangible capital does not since in recessions, firms choose to reallocate intangible capital over tangible. I also show that in the last decade the correlation of tangible capital reallocation with GDP has decreased to a quarter of its 1980s level. However, the correlation of intangible capital reallocation with GDP has remained the same in the last decade as in the 1980s. This result indicates that tangible capital collateralizability has become more important over time. Both these results show the distinctive cyclicality of the reallocation of both forms of capital. Second, at the firm level, I use data on M\&As to document the effects of capital reallocation on firm productivity and the importance of including intangible capital when evaluating the effects of capital reallocation. I document that after an M\&A, acquirer's structurally estimated productivity increases on average 4\% annually, and this productivity is 45\% higher when intangible capital is excluded from the estimation. This serves as evidence that capital reallocation is beneficial for the acquirers and intangible capital reallocation can account for measured productivity gains.
In the second essay, I contribute to the recent macroeconomics literature on financial frictions at a theoretical and a quantitative level. This literature attempts to quantify the magnitude of output fluctuations attributable to financial market disturbances through frictions on the reallocation of capital among firms. At the theoretical level, I build a model in which heterogeneous firms use two forms of capital, tangible and intangible capital, to produce output. These firms are subject to idiosyncratic productivity shocks. I assume that only tangible capital is collateralizable and that both forms of capital are reallocatable across firms post-shock. I show that a financial market disturbance in the form of a tighter collateral constraint leads to a decline in output in the model with both forms of capital that is 2.8 times greater than the decline in output in the model with only tangible capital, in the sense, allowing for intangible capital magnifies the effects of financial market disturbances on output. A tighter collateral constraint causes tangible capital reallocation to decline sharply because firms are more constrained and leads to a fall in intangible capital reallocation because both types of capital are complementary in production.
In the third essay, I present novel empirical observations about mergers and acquisitions. I show that acquirer productivity increases after an merger or an acquisition and that these the ex-post productivity gains are an inverse function of the productivity difference between the acquirer and target at the time of the merger or an acquisition. I also note that the higher the ex-post productivity gains for an acquirer, the bigger the decline in acquirer announcement returns and smaller the increase in target announcement returns. Lastly, I show that the executive compensation increase does not account for most of the ex-post productivity gains. These findings show that gains after a merger or an acquisition are not accruing towards shareholders or executives. Thus, I find suggestive evidence that labor obtains the most benefit associated with a merger or an acquisition in the form of increased wages and benefits.
University of Minnesota Ph.D. dissertation. August 2013. Major: Economics. Advisor: Varadarajan V. Chari. 1 computer file (PDF); xi, 101 pages.
Barlas, Mirza Jahiz.
Essays in intangible capital reallocation, mergers and acquisitions and financial frictions.
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