Review of Industrial Organization 15: 1–24, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
The Characteristics, Performance and Strategic
Behaviour of Merged Versus Non-Merged
Establishments in Britain
GRAZIA IETTO-GILLIES and MELORIA MESCHI
Professor of Economics, Research Fellow, South Bank University Business School, 103 Borough
Road, London SE1 OAA
Abstract. The paper compares the structural characteristics, market conditions, organizational
features, strategic behaviour and performance of merged versus non-merged private business estab-
lishments in Britain. The results are based on the analysis of the 1990 Workplace Industrial Relations
Survey. The following conclusions are reached: merged establishments tend to be rather old, of small
to medium size, more likely to be foreign-owned and to be involved in manufacturing. Compared to
non-merged establishments they are likely to operate in international and oligopolistic markets, in
multi-products and in conglomerate businesses. The merged manufacturing establishments are more
likely to have been involved in restructuring strategies and to have cut jobs and achieved productivity
gains. More merged establishments declare a below-average ﬁnancial performance.
Key words: Mergers, business performance, strategies, Britain
JEL Classiﬁcation: G34, L1, L2
The last few decades have seen a series of merger waves which have prompted
explanations by economists as to why mergers occur. Among the theoretical expla-
nations for merger activity we ﬁnd the following. The achievement of economies
of scale or scope, the discipline of inefﬁcient management (Jensen and Meckling,
1976), the diversion of free cash ﬂow from shareholders (Jensen, 1986), the pursuit
of growth in order to increase the managers’ power (Marris, 1964), the response to
other mergers taking place in the market (Cantwell, 1992), the increase in market
power, or, in the case of transnational mergers, the gain of a presence in a foreign
We are very grateful to two anonymous referees of this journal for very useful comments to
an earlier draft. The paper has also beneﬁted from comments at presentation at the University of
Manchester Institute for Technology (UMIST, Feb. 1998) and at a conference on Integration and
Globalization, South Bank University (Jan. 1998). This research was done in the context of a wider
project on “Technology, Economic Integration and Social Cohesion” funded by the EC-TSER.