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

Author

Listed:
  • Reddy, K. Srinivasa
  • Nangia, Vinay Kumar
  • Agrawal, Rajat

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.

Suggested Citation

  • Reddy, K. Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2012. "Corporate mergers and financial performance: A new assessment of Indian cases," MPRA Paper 60425, University Library of Munich, Germany, revised 2013.
  • Handle: RePEc:pra:mprapa:60425
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    References listed on IDEAS

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    Cited by:

    1. Reddy, Kotapati Srinivasa, 2010. "International Diversification through Acquisition: Fundamentals and Estimations of Vedanta buyout of Cairn India," MPRA Paper 74304, University Library of Munich, Germany, revised 2016.
    2. Reddy, Kotapati Srinivasa, 2016. "Corporate Restructuring in the Asian electronics market: Insights from Philips and Panasonic," MPRA Paper 73663, University Library of Munich, Germany, revised 2016.
    3. Reddy, K. Srinivasa, 2011. "The aftermarket pricing performance of initial public offers: Insights from India," MPRA Paper 62885, University Library of Munich, Germany, revised 2013.
    4. repec:ssi:jouesi:v:1:y:2013:i:2:p:81-91 is not listed on IDEAS

    More about this item

    Keywords

    Acquisitions and mergers; Accounting ratios; Financial performance; Event study; Financial analysis; Financial modeling; Asian emerging markets; BRIC nations; India;

    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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