Fact of the Week: Banning M&A Activity Reduces GDP 15 percent, and Reducing Product Market Competition Lowers Overall Output 10 percent

Source: Nicolas Bloom et al., “Management and Firm Dynamism” (working paper 25-052 from Harvard Business School, April 28, 2025).

Commentary: Management quality plays a pivotal role in determining whether firms expand, contract, acquire, or shut down their plants. A study by Bloom and colleagues analyzed management data from the U.S. Census Bureau’s Management and Organizational Practices Survey; plant-level acquisition, disposal, opening, and closing data from the Longitudinal Business Database; and management practices data from the World Management Survey to explore whether and how management affects firms’ decisions to acquire, sell, open, or close plants.

Using Census microdata, the authors developed a model that accounted for firm- and plant-level management practices and the ability of firms to acquire and sell plants. The model concluded that well-managed firms are 1) more likely to expand their plants; 2) more likely to reduce their plants (though overall they expand more than contract their plants); 3) more likely to develop better-managed new plants; and 4) more likely to improve their management practices, productivity, and sales after taking over a new plant. These model results were in line with the empirical findings in the Census microdata, signaling the efficacy of the model.

The authors subsequently used the model to analyze the impact of banning mergers and acquisitions in the economy and reducing product market competition, two policy-related areas that affect economy-wide productivity. Banning M&A activity was found to reduce gross domestic product by about 15 percent, as plants could no longer be reallocated to firms with effective management abilities. Meanwhile, reducing product market competition lowered overall output by 10 percent, as it slowed the closure of poorly managed plants and the expansion of well-managed ones. Finally, the authors also found that differences in management practices account for 19 percent of the total factor productivity differences across nations, meaning that management practices could have a significant impact on the wealth of a nation.