Corporate mergers and financial performance: A new assessment of Indian cases

Reddy, K. Srinivasa and Nangia, Vinay Kumar and Agrawal, Rajat (2012): Corporate mergers and financial performance: A new assessment of Indian cases. Published in: Nankai Business Review International , Vol. 4, No. 2 (2013): pp. 107-129.

Abstract

Purpose: It is worth mentioning that mergers and acquisitions (M&As) have become a popular vehicle for emerging-markets firms to rapidly access new opportunities and market capabilities. Indeed, privatization and multi-nationalization have given a greater shore up in raising global and domestic merger deals. Certainly, these factors are motivated us to investigate “does mergers produce abnormal returns around the announcement; conversely, does they improve financial performance in the long-run”.

Design/Methodology/Approach: The study applies earnings management approach (event study) to compute average abnormal returns (AAR) around the merger announcement for select Indian M&A cases. Further, accounting ratios are considered to assess the long-run financial performance. Thereafter, t-stat is applied for testing the proposed hypotheses. In particular, it has performed a later test to the means of financial ratios and variables for both services and manufacturing sectors in accounting ratios and cylinder models respectively.

Findings: The select Indian M&A cases show superior performance during the post-merger period for both manufacturing and services sectors, and observe a balance sheet improvement in the long-run.

Research limitations: Sample is one of the limitations to the study. Due to small sample of merger cases, this paper has limited scope to generalize the results. Hence, academic researchers may employ the suggested assessment (cylinder)-models on large sample.

Practical implications: The research work would help financial analysts, stockbrokers, M&A advisory and regulatory bodies while designing takeover and open offer policies.

Originality/Value: This is an original contribution, which has developed new assessment (cylinder)-models to examine the post-merger long-run financial performance of acquiring firms, especially sector-wise evaluation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Acquisitions and mergers; Accounting ratios; Financial performance; Event study; Financial analysis; Financial modeling; Asian emerging markets; BRIC nations; India
• Subjects: G - Financial Economics > G0 - General; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

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