The Long-Term Operating Performance of European Mergers and Acquisitions
AbstractWe investigate the long-term profitability of corporate takeovers of which both the acquiring and target companies are from Continental Europe or the UK.We employ four different measures of operating performance that allow us to overcome a number of measurement limitations of the previous literature, which yielded inconsistent conclusions.Both acquiring and target companies significantly outperform the median peers in their industry prior to the takeovers, but the raw profitability of the combined firm decreases significantly following the takeover.However, this decrease becomes insignificant after we control for the performance of the peer companies which are chosen in order to control for industry, size and pre-event performance.None of the takeover characteristics (such as means of payment, geographical scope, and industry-relatedness) explain the post-acquisition operating performance. Still, we find an economically significant difference in the long-term performance of hostile versus friendly takeovers, and of tender offers versus negotiated deals: the performance deteriorates following hostile bids and tender offers.The acquirer's leverage prior takeover seems to have no impact on the post-merger performance of the combined firm, whereas the acquirer's cash holdings are negatively related to performance.This suggests that companies with excessive cash holdings suffer from free cash flow problems and are more likely to make poor acquisitions.Acquisitions of relatively large targets result in better profitability of the combined firm subsequent to the takeover, whereas acquisitions of a small target lead to a profitability decline.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2006-030.
Date of creation: 2006
Date of revision:
Contact details of provider:
Web page: http://www.tilburguniversity.nl/tilec/
Other versions of this item:
- Martynova, M. & Oosting, S. & Renneboog, L.D.R., 2006. "The Long-Term Operating Performance of European Mergers and Acquisitions," Discussion Paper 2006-111, Tilburg University, Center for Economic Research.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Powell, Ronan G. & Stark, Andrew W., 2005. "Does operating performance increase post-takeover for UK takeovers? A comparison of performance measures and benchmarks," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 293-317, March.
- Clark, Kent & Ofek, Eli, 1994. "Mergers as a Means of Restructuring Distressed Firms: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(04), pages 541-565, December.
- Millon Cornett, Marcia & De, Sankar, 1991. "Medium of Payment in Corporate Acquisitions: Evidence from Interstate Bank Mergers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(4), pages 767-76, November.
- Healy, Paul M. & Palepu, Krishna G. & Ruback, Richard S., 1992. "Does corporate performance improve after mergers?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 135-175, April.
- Switzer, Jeannette A., 1996. "Evidence on real gains in corporate acquisitions," Journal of Economics and Business, Elsevier, vol. 48(5), pages 443-460, December.
- Barber, Brad M. & Lyon, John D., 1996. "Detecting abnormal operating performance: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 41(3), pages 359-399, July.
- Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin & Zulehner, Christine, 2003.
"The effects of mergers: an international comparison,"
International Journal of Industrial Organization,
Elsevier, vol. 21(5), pages 625-653, May.
- Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu & Christine Zulehner, 2001. "The Effects of Mergers: An International Comparison," CIG Working Papers FS IV 01-21, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Spiess, D. Katherine & Affleck-Graves, John, 1995. "Underperformance in long-run stock returns following seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 38(3), pages 243-267, July.
- Ghosh, Aloke, 2001. "Does operating performance really improve following corporate acquisitions?," Journal of Corporate Finance, Elsevier, vol. 7(2), pages 151-178, June.
- Heron, Randall & Lie, Erik, 2002. "Operating Performance and the Method of Payment in Takeovers," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(01), pages 137-155, March.
- Martynova, M. & Renneboog, L.D.R., 2006.
"Mergers and Acquisitions in Europe,"
2006-6, Tilburg University, Center for Economic Research.
- R. Abdul Rahman & R.J. Limmack, 2004. "Corporate Acquisitions and the Operating Performance of Malaysian Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3-4), pages 359-400.
- Linn, Scott C. & Switzer, Jeannette A., 2001. "Are cash acquisitions associated with better postcombination operating performance than stock acquisitions?," Journal of Banking & Finance, Elsevier, vol. 25(6), pages 1113-1138, June.
- Yeh, Tsung-ming & Hoshino, Yasuo, 2002. "Productivity and operating performance of Japanese merging firms: Keiretsu-related and independent mergers," Japan and the World Economy, Elsevier, vol. 14(3), pages 347-366, August.
- Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
- Lev, Baruch & Mandelker, Gershon, 1972. "The Microeconomic Consequences of Corporate Mergers," The Journal of Business, University of Chicago Press, vol. 45(1), pages 85-104, January.
- Goergen, Marc & Renneboog, Luc, 2003.
"Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids,"
EIFC - Technology and Finance Working Papers
20, United Nations University, Institute for New Technologies.
- Marc Goergen & Luc Renneboog, 2004. "Shareholder Wealth Effects of European Domestic and Cross-border Takeover Bids," European Financial Management, European Financial Management Association, vol. 10(1), pages 9-45.
- Goergen, M. & Renneboog, L.D.R., 2002. "Shareholder Wealth Effects of European Domestic and Cross-Border Takeover Bids," Discussion Paper 2002-50, Tilburg University, Center for Economic Research.
- Dickerson, Andrew P & Gibson, Heather D & Tsakalotos, Euclid, 1997. "The Impact of Acquisitions on Company Performance: Evidence from a Large Panel of UK Firms," Oxford Economic Papers, Oxford University Press, vol. 49(3), pages 344-61, July.
- Agrawal, Anup & Jaffe, Jeffrey F & Mandelker, Gershon N, 1992. " The Post-merger Performance of Acquiring Firms: A Re-examination of an Anomaly," Journal of Finance, American Finance Association, vol. 47(4), pages 1605-21, September.
- Ghosh, Aloke & Jain, Prem C., 2000. "Financial leverage changes associated with corporate mergers," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 377-402, December.
- Hogarty, Thomas F, 1970. "The Profitability of Corporate Mergers," The Journal of Business, University of Chicago Press, vol. 43(3), pages 317-27, July.
- Denis, David J & Denis, Diane K, 1995. " Performance Changes Following Top Management Dismissals," Journal of Finance, American Finance Association, vol. 50(4), pages 1029-57, September.
- Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
- Loughran, Tim & Vijh, Anand M, 1997. " Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-90, December.
- Jun-Koo Kang & Anil Shivdasani & Takeshi Yamada, 2000. "The Effect of Bank Relations on Investment Decisions: An Investigation of Japanese Takeover Bids," Journal of Finance, American Finance Association, vol. 55(5), pages 2197-2218, October.
- Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
- INOUE Kotaro & NARA Saori & YAMASAKI Takashi, 2013. "Are Japanese Acquisitions Efficient Investments?," Discussion papers 13085, Research Institute of Economy, Trade and Industry (RIETI).
- Svetlana Grigorieva & Tatiana Petrunina, 2013. "The performance of mergers and acquisitions in emerging capital markets: new evidence," HSE Working papers WP BRP 20/FE/2013, National Research University Higher School of Economics.
- Shantanu Dutta & Vinod Kumar, 2009. "Mergers and Acquisitions (M&AS) by R&D Intensive Firms," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 2(1), pages 1-37, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman) The email address of this maintainer does not seem to be valid anymore. Please ask Richard Broekman to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.