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Managers are interested in mergers and acquisitions that boost the firm's price per share of common stock. The share price will rise if the discounted future earnings of the acquired firm exceed the cost of the acquisition. Financial theorists, however, have found that mergers, as a whole, do not increase stockholder wealth;'but the lack of guaranteed merger profits would not be apparent to the financial manager in the current period of enormous merger activity (1967-1979). The creation of verifiable economic profits through mergers is suggested by the management literature. Mergers create organizations that exhibit economies of scale in management. The growth in the organization fosters organizational differentiation, which increases manpower requirements. Theoretically, mergers should reduce employment because the administrative economies of scale exceed the increasing complexity of costs of large organizations. 2

The role that changes in the number of employees and the amount of capital expenditures play in the acquisition process is examined in this study. These two variables are inputs to the production process. The growth of capital and labor is necessary for long-term firm expansion. If synergy is generated by a merger, the market value of the merged firm exceeds the sum of the market values. of the unmerged firms, and the productive inputs are used more efficiently. The most efficient use of capital and labor is shown through reductions in the employment-to-sales ratio and the capital-expenditures-to-sales ratio. The increases in input productivity should benefit both the firm and the economy.