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

Corporate mergers and financial performance: a new assessment of Indian cases 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Nankai Business Review International Emerald Publishing

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

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
2040-8749
DOI
10.1108/20408741311323326
Publisher site
See Article on Publisher Site

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.

Journal

Nankai Business Review InternationalEmerald Publishing

Published: May 31, 2013

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

References