Analysis of Relationship Between Market Reactions and Long Term Performance on Acquisitions

Nababan, Tongam Sihol and Nababan, Sere Eva and Tampubolon, Bantu (2005): Analysis of Relationship Between Market Reactions and Long Term Performance on Acquisitions. Published in: VISI , Vol. 14, No. 2 (June 2005): pp. 104-124.

Abstract

This paper is the study of the research that gives attention to the activities of acquisitions made by firms acquirer (acquirer). The main purpose of this study was to see how the reaction of the market (market reaction) will provide guidance on the picture of the performance of the acquirer firms in the long term. In this study we used 39 acquirers who has made acquisitions in the period between 1991 to 1998. This study applies event study method using the market model to calculate abnormal return.

The hypothesis test used was the One Sample T-test, the Multiple Regressions, Wilcoxon Signed-Rank Test and Manova Test. Results of hypothesis testing showed that the acquirer receives a significant negative abnormal return along the date of acquisition. This indicates that the acquisition of events produce a lower return than predicted return is predicted by the shareholders of the acquirer. This study indicated several factors that affect the abnormal return as: financial synergy, size of the acquirer, managerial efficiency, growth of the acquirer, and business relatedness. Results of testing hypotheses against against these factors indicate that none of those variables that provide significant value. This means that the motives of the acquisition is not a motivation for acquirers to engage in activities acquisition.

To assess the performance of companies acquirer in the long term, use a proxy such as: ROA, ROE, OPM. The test results showed that overall there was no significant difference between performance before and after the acquisition. This means that most acquirer firms are generally not able integrate acquirer gains against long-term performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: acquisition, long term performance, market reaction, abnormal profit
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G20 - General

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