Post-merger Operating Performance Research Articles

Multinational enterprises, intra-regional cross-border M&As, and performance: Location advantages of market versus knowledge

Building on the theories of internalization and regional MNEs and using a sample of 11,098 cross-border M&As in 1997–2017, this study investigates performance implications of MNEs’ cross-border M&As aimed to locate overseas market potential versus knowledge endowment, in terms of intra-regional vis-à-vis inter-regional M&As. The main findings from this study are threefold: (1) Intra-regional cross-border M&As’ positive effects on their completion and post-merger operating performance are location advantage-specific phenomena; (2) When cross-border M&As are geared towards those foreign countries of strong market potential, intra-regional cross-border M&As are more likely to be completed, and followed by better post-merger operating performance of the acquirers than their inter-regional counterparts; and (3) When cross-border M&As are targeted towards those foreign countries endowed with sophisticated knowledge, intra-regional cross-border M&As are less likely to be completed, and do not seem to help the acquirers achieve better post-merger operating performance, compared to their inter-regional counterparts. The study concludes with important theoretical, practical, and public policy implications.

Analysis of Post-Merger Operating Performance of Acquiring Firms in India

Analysis of Post-Merger Operating Performance of Acquiring Firms in India

The effect of environmental, social and governance score on operating performance after mergers and acquisitions

AbstractThis paper examines how the corporate social responsibility performance of the acquirer firm, measured with the environmental, social and governance score, is related to postmerger operating performance, by analysing 796 merger operations that took place between 2011 and 2018. The analysis was carried out by first considering the full sample and then dividing the sample into three subsamples: acquirer companies with an environmental, social and governance score below the median, acquirer companies with a rating above the median and finally those companies considered to have a very high score (over 80). To support the results obtained from this analysis, a machine learning technique was subsequently applied to the data. The results obtained from the analysis demonstrated that acquiring companies with a high environmental, social and governance rating manage to generate a significant improvement in operating performance postdeal after the merger, whereas this is not the case for companies with a low score or for companies with a score of above 80. These results seem to demonstrate that although a high environmental, social and governance score can have a positive impact on postmerger operating performance, this only true up to a point. A possible explanation for this could be that the costs involved in integrating and aligning the culture of the two merging companies increase when there is the need to maintain a high score.

Negative goodwill and postmerger operating performance: evidence from Japan

PurposeThis study examines the relation between negative goodwill (NGW) and operating performance after mergers and acquisitions (M&A).Design/methodology/approachThis is a comparative analysis of post-M&A operating performance for 228 transactions involving listed Japanese firms that generated negative or positive goodwill.FindingsFirst, post-M&A operating performance is lower when the transaction generates NGW. Second, the negative relation between NGW and post-M&A performance is stronger when managers have incentives for earnings management and when target firms perform poorly before M&A. Third, changes in the accounting treatment of NGW alter the relative importance of earnings management incentives and target firms' poor pre-M&A performance.Originality/valuePrior studies attribute the negative relation between NGW and post-M&A performance solely to acquiring firms' managers' earnings management incentives. The current study finds that the target firm's poor pre-M&A performance is also associated with the relation between NGW and post-M&A performance.

Unique bidder-target relatedness and synergies creation in mergers and acquisitions

Despite the theoretical appeal of the importance of the uniqueness of firm relation in merger synergy creation, empirical evidence supporting this synergy source is limited. We examine the effect of the uniqueness of the bidder-target relationship, i.e., the number of firms that share the bidder-target relationship, on merger synergies. We use machine learning tools to measure unique bidder-target relatedness and find that unique relatedness is associated with a much larger increase in merger synergies than non-unique relatedness. The measure of unique relatedness mostly captures product relatedness, and this measure dominates alternative product relatedness measures in predicting merger synergies. Analysis of the acquirer's post-merger operating performance shows that the unique relatedness creates synergies through enhanced operating efficiency rather than increased investment or revenue.

The dark side of shareholder litigation: Evidence from corporate takeovers

AbstractExploiting staggered adoption of the universal demand (UD) laws by 23 states between 1989 and 2005 that makes filing shareholder derivative litigations more difficult, we show that reduced litigation threats improve corporate takeover efficiency. Using a difference‐in‐differences approach, we find that acquirers experience higher announcement returns and better postmerger operating performance after the UD laws. Further analysis suggests that acquirers make suboptimal merger decisions to avoid litigation. Taken together, we show that litigation risk can distort managers’ incentives and destroy value ex ante.

Do regulatory bank mergers improve operating performance?

We analyze the post-merger operating performance of FDIC-assisted bank mergers (regulatory mergers) during and after the 2008–09 financial crisis. Regulatory mergers experience significant improvements in profitability and cost efficiency up to two years following the transaction. These improvements are significantly higher than those experienced by non-merger peers. In contrast, the post-merger operating performance of nonregulatory mergers is not significantly different from the performance of their non-merger peers. For regulatory mergers, the wealth that may have been transferred from the FDIC to the acquirers as incentives for the mergers is not a significant factor in determining the operating performance improvements.

Corporate media connections and merger outcomes

We examine the relation between acquirer social ties with the media and merger outcomes. We find that, consistent with the media management hypothesis, media connectedness is associated with the higher bid announcement return, lower takeover premium, poorer post-merger operating performance, greater likelihood of deal closure, and greater acquisitiveness. The association between media connections and merger announcement returns is more pronounced for stock deals. Examining the underlying channel, we show that the media networks are positively related to acquirers' media coverage and sentiment of the news articles during the pre-bid announcement period. Our findings are robust to alternative variable measurement as well as tests for endogeneity.

Workforce reductions and post-merger operating performance: The role of corporate governance

This paper examines whether corporate governance mechanisms influence the association between workforce reductions and post-acquisition operating performance. Using UK-based acquisitions, it is found that there is a negative relationship between employment reductions and post-acquisition operating performance. However, the results show that this negative association becomes positive when the board has a substantial equity ownership. This suggests acquirers with higher levels of board ownership make better quality layoff decisions and, thereby, achieve operating performance improvement subsequent to workforce reductions. The results also indicate that larger board size and greater board independence decrease the negative effect of acquisition-related workforce reductions on subsequent operating performance. Further, our results show that CEO duality increases the negative relationship between employment reductions and post-acquisition operating performance. Overall, the results suggest that corporate governance plays an important role in understanding the performance effect of acquisition-related workforce reductions.

Pre-Merger and Post-Merger Operating Performance of SBI

In today’s business world the corporate and PSUs have practiced of major restructuring through merger and acquisition strategies. This is well acknowledged fact Mergers and Acquisitions are being considered as an admired strategy for augmentation. This research paper is based on how the merger of SBI associates into its parents company affects the financial performance on consolidation basis. In this article we analyzed the financial position before merger and after merger of SBI and find out an increase in the profitability by few parameters in short run while it gives the hike in performance as well as in efficiency for long term basis because of low operating cost. It has been observed that after the merger, bad loan pile up, suddenly the profit of the bank come down, during this period when the entire economy of India was facing the pressure of demonetization and GST regime in India while SBI was thinking to be indexed in top 50 banks of the world. This research article also reveals the fact and figures how mergers & acquisitions have consequences and effects on financial position of the bank performance considering five years from the very beginning of pre and post observation period. In this study t-test is used to evaluate all financial parameters before and after merger of five SBI associates into SBI and it is found that for short period of time, after merger the SBI did not perform well but after two years it has not only increased its profitability but also increase the efficiency by minimizing the operating cost.

Motives of mergers and acquisitions in the European public utilities

PurposeThe purpose of this paper is to investigate the motivation and post-merger operating performance (OP) of European utility sectors following mergers and acquisitions (M&A).Design/methodology/approachMotives behind M&A are examined by looking into the relationships between total gains, target gains and acquirer gains. Post-merger OP is measured by comparing the sample of European utilities with a matched portfolio based on size and market to book ratio with respect to five accounting indicators: growth in turnover, growth in earnings before interest and tax, return on assets, net profit margin and growth in fixed assets.FindingsSynergy is the primary motive for M&A in the European utility firms. This study also found that post-merger OP is negative and significant across all the five accounting indicators matched by size, and market to book ratio suggesting that utility mergers underperform in the long term. The findings suggest that gains accruing to utilities involved in acquisitions are short term in nature.Practical implicationsNegative post-merger OP bears important policy implications as in future antitrust/competition authorities should be more vigilant before approving utility mergers.Originality/valuePublic utilities possess several characteristics that are different from industrial firms and therefore need to be examined separately. Empirical literature on M&A is very limited on utilities. This study has addressed this gap by examining the motivation and post-merger OP of the European utility firms.

Organization Capital and Mergers and Acquisitions

Using a sample of completed U.S. acquisition deals over the period 1984–2014, we find that acquirer organization capital as measured by capitalized selling, general, and administrative (SG&A) expenses is associated with superior deal performance. We show that high organization-capital acquirers achieve significantly higher abnormal announcement period returns, and better post-merger operating and stock performance, than low organization-capital acquirers. Additional tests suggest a causal relation between acquirer organization capital and deal performance. We further show that post-merger, high organization-capital acquirers cut more on the cost of goods sold, invest more in SG&A expenses, and achieve greater asset turnover and innovative efficiency.

Do Merger-Related Operating Synergies Exist?

Executives frequently forecast large operating efficiency gains from mergers. Using these projections, we study the impact of operating synergies on merger performance. Investors' reaction to mergers varies directly with the availability of these forecasts and the gains they imply, and post-merger operating performance increases with the predictable component of forecasted synergies based on deal characteristics. The realized improvements, however, do not depend on the availability of forecasts or the surprise they convey, and post-merger stock returns reconcile discrepancies between investors' ex ante beliefs and mergers' ex post performance related to management forecasts. Overall, the evidence supports the neoclassical view that expectations and realizations of synergistic gains are important determinants of merger activity and performance.

Inside the Board Room: Nationality, Cultural Diversity and Cross-Border Merger Outcomes

In recent years, an increase in the number of foreign directors on corporate boards of large multinational corporations has seemingly gone hand in hand with significant growth in cross-border merger (CBM) activity. We analyze the influence of internationalization of the board of directors on announcement returns and post-merger performance of U.S. acquirers. In a sample of completed CBMs by U.S. corporations between 1996 and 2013, we find a negative association between the presence of foreign directors on the board and CBM announcement returns and post-merger operating performance. This negative relationship is driven mainly by directors from countries with greater cultural distance relative to the United States. Furthermore, the negative effect of foreign directors in connection with culture diversity on merger performance is more pronounced in diversifying, high-tech CBMs. The negative association remains when the directors are domiciled in the country where a merger takes place. However, their presence contributes to lower bid premiums, reflecting some benefits from their local expertise. Finally, such negative impact is mitigated by the gender diversity of the acquiring firm’s corporate board, which suggests a more inclusive tone helps to reduce potential cultural conflicts inside the board room.

Cross-border merger waves

We examine the valuation effects of cross-border merger and acquisition (M&A) waves. Like domestic M&As, cross-border M&As cluster by industry and time. Cross-border M&A waves create value overall: acquirer announcement returns, combined acquirer and target announcement returns, and post-merger operating performance within waves are significantly higher than those outside of waves. Unlike domestic M&A waves, deals undertaken later in waves outperform those earlier in waves. The late entrants' outperformance is stronger when target countries differ from acquirer countries in terms of culture, financial development, and legal system. Overall, the results suggest that cross-border acquisitions promote efficient redeployment of corporate assets.

Post-merger Effect on Operating Performance of Financial Institutions: Evidence from Nepal

This article studies post-merger operating performance of financial institutions using the data set published in their annual reports. Based on 22 merger deals made during 2004-20013 by financial institutions listed in the Nepal Stock Exchange, this paper analyzes their financial statements for four years (two year before the merger and two year after the merger) by using six key accounting ratios. In spite of certain limitations, accounting ratios are still considered as a convenient and reliable analytical tool. The article concludes that merger deals fail to significantly improve the post-merger operating performance of financial institutions.Repositioning Vol.1(1) 2016: 11-22

Do managers learn from the market? Firm level evidence in merger investment

Chen, Goldstein, and Jiang (2007) first present direct evidence that managers learn from the market in internal capital investment decisions. This paper extends the research to merger investment. We report that stock price firm-specific information increases the sensitivity of merger investment to Tobin's Q. This relation is not driven by a particular subsample and is robust to diverse measures of stock price informativeness. It also holds when we control for related variables. Firms with more informative stock prices achieve better post-merger operating performance. Overall, these results suggest that managers learn new information from financial markets in making merger investment decisions.

The impact of capital shocks on M & A transactions

Purpose – This paper aims to examine whether an exogenous shock to the supply of financial capital mitigates agency conflicts between managers and shareholders and incentivizes managers to channel available financial resources into value-increasing acquisitions. Design/methodology/approach – The authors use a difference-in-differences approach to mitigate endogeneity concerns. To address the concern that substantial differences between the treatment and control groups may violate the parallel-trend assumption of the D-in-D approach, the authors use a propensity score-matching procedure and construct a matched sample for their empirical analysis. Findings – The authors find that below-investment-grade firms are significantly less likely to make acquisitions relative to unrated firms following the collapse of the junk bond market in 1989. Conditional on initiating a successful acquisition, below-investment-grade acquirers are less likely to acquire diversifying targets and public targets, but more likely to acquire subsidiary targets. In addition, below-investment-grade acquirers experience higher post-merger operating and stock performance for acquisitions initiated in the post-shock period. Originality/value – The authors demonstrate that capital shocks negatively impact managers’ propensity to make acquisitions, which are considered a well-established outlet for agency conflicts between managers and shareholders. In addition, managers who are subject to capital shocks tend to manage available financial resources more efficiently and make better acquisition decisions that lead to greater value creation.

Acquiring Access to Finance

This paper examines the role of firms’ access to bank finance in mergers and acquisitions. We find robust evidence that greater access to bank finance increases the probability that firms become targets in acquisitions. The acquirers associated with this result are small and private firms which benefit from obtaining greater access to finance via M&A. For acquisitions of targets with greater access to bank finance, we confirm that target return premiums are higher, acquirers have better post-merger operating and stock performance, and combined-firm leverage is higher. These results reveal that targets, not just acquirers, contribute to financing efficiencies in M&A.

The Dark Side of Shareholder Litigation: Evidence from Corporate Takeovers

Exploiting staggered adoption of universal demand (UD) laws by 23 states between 1989 and 2005 as quasi-natural experiments, we show that reduced shareholder litigation threat improves corporate takeover efficiency. Using a difference-in-differences approach, we find that acquirers incorporated in states that adopted UD laws experience higher announcement returns and better long-run post-merger operating performance. Further analysis shows that acquirers make suboptimal merger decisions to reduce litigation risk.