Diff-in-diff with mergers/acquisitions

[Matteo Ghislandi]

Hi all,

I would like to run a diff-in-diff in order to study the effects of acquisitions on some firms performance. I have data on efficiency (dependent variable) and other control variables for both the acquired and the acquirer before and after the acquisition.

My question would be: my treatment group would get the data of the acquirer for periods after the merger, but what about the periods before? If I use again those of the acquirer, then the efficiency gains/losses after the acquisitions would be driven mainly by whether the acquired is a good/bad firm in terms of performance, thus I would not catch the effects of merging itself on performance.

I was thinking to consider as "pre-acquisition" (for the treated group) a weighted average of all the indicators between the acquirer and the acquired (weighted by some size variable like total assets), but it sounds a bit rudimentary.

Another alternative would be to control in the regression for data of the acquired, but I am afraid about problems in terms of correlation with other control variables, etc.

Any idea?

Thank you in advance for your answers,
Matteo

[Phil Bromiley]

You'll increase your chances of a useful answer by following the FAQ on asking questions - provide Stata code in code delimiters, readable Stata output, and sample data using dataex.

I'm not an expert in mergers, but I might see the comparison group as not including the merger targets. Then you'd have the acquirer before and after that merger, and the comparison firms before and after. I'm not sure d-i-d is the right way to go here (I worry that the entity is changing) but I'm not a d-i-d person per se.