Energy Markets for Corporate Control

Managers differ in their ability to maintain productivity, or in their incentive to try. This can make low performing firms targets for acquisition by higher performing firms. A recent study of thousands of US power plant ownership changes by Demirer and Karaduman finds a 2% average increase in efficiency for acquired plants.

Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements.

These mergers move power plant assets from low value uses into higher value uses.