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

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. Motivated by these factors, the purpose of this paper is to investigate “do mergers produce abnormal returns around the announcement; conversely, do 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/implications

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 a 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.

Citation

Srinivasa Reddy, K., Nangia, V.K. and Agrawal, R. (2013), "Corporate mergers and financial performance: a new assessment of Indian cases", Nankai Business Review International, Vol. 4 No. 2, pp. 107-129. https://doi.org/10.1108/20408741311323326