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arXiv · 2301.08847

Learning Production Process Heterogeneity Across Industries: Implications of Deep Learning for Corporate M&A Decisions

Jongsub Lee·Hayong Yun
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Abstract

Using deep learning techniques, we introduce a novel measure for production process heterogeneity across industries. For each pair of industries during 1990-2021, we estimate the functional distance between two industries' production processes via deep neural network. Our estimates uncover the underlying factors and weights reflected in the multi-stage production decision tree in each industry. We find that the greater the functional distance between two industries' production processes, the lower are the number of M&As, deal completion rates, announcement returns, and post-M&A survival likelihood. Our results highlight the importance of structural heterogeneity in production technology to firms' business integration decisions.

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Jongsub Lee, Hayong Yun. 2023-01-21. Learning Production Process Heterogeneity Across Industries: Implications of Deep Learning for Corporate M&A Decisions. https://arxiv.org/abs/2301.08847

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