In Search of Synergy Effects : Mergers and Productivity

We propose an alternative method for investigating whether firms improve performance through mergers after taking into account the selection bias of merging firms. We simultaneously consider the dynamics of firm performance and the merger decision by employing full information maximum likelihood (FIML) estimation. Our study differs from previous studies in that state dependence, unobservable heterogeneity, and selection bias are incorporated simultaneously. Because the effects of mergers may be felt gradually, the dynamic effects of mergers and the factors associated with these dynamics should be taken into account. Our FIML approach complements the strategy used in the extant literature for investigating the effects of mergers on firm performance