Operating performance of acquirers after acquisition: evidence from India

Abstract

Purpose The purpose of this paper is to examine the operating performance of Indian using difference-in-difference (DD) methodology. It, further, examines whether there is a difference in the operating performance of acquirers doing partial and full acquisitions. Design/methodology/approach Four different benchmark criteria are used to select control firms, namely, size, size and industry, size and leverage, and size and book-to-market ratio. To measure the operating performance, return on assets (ROA) is calculated as the ratio between earnings before depreciation, interest, tax and amortization (EBDITA) and total assets (TA), expressed in percentage. This paper examines the ROA of event and control firms for three years in each pre- and post-acquisition period and finally compares them using the DD method. Findings Using a sample of Indian acquirers, the results show that the operating performance of Indian acquirers neither improves nor deteriorates after accounting for an appropriate benchmark. Operating performance of event firms significantly reduces in the post-acquisition period. However, non-acquiring firms of similar size and pre-operating performance also exhibit similar results. Finally results show that, the operating performance of acquirers making full acquisitions deteriorates. Originality/value It provides insights into the operating performance of Indian acquirers with an improved methodology, which accounts for the performance of control firms. The author also uses multiple matching criteria to find control firms to overcome the possible bias of the results dependent on the matching criteria. To the best of the author’s knowledge, the author could not find other studies comparing the operating performance of acquirers making partial and full acquisitions.

Impact of Merger and Acquisition on Financial Performance: Evidence from Construction and Real Estate Industry of India

“…The study also found that profitability and liquidity of acquiring firms had a positive impact on the merger, but there was no impact of the merger on solvency position of acquiring firms. Dixit (2019) examined the operating performance, using difference-in-difference methodology, to empirically test performance differences, among acquirers who pursued partial and full acquisition using Indian M&A. It was found that Indian acquiring firms realized no change in accounting measures, while their operating performance significantly reduced in the post-acquisition period for full acquirers.…”

The moderating effects of the industry competition level and industry diversification on the relationship between the transaction price of mergers and acquisitions and corporate value

“…While there are instances where M&A benefits shareholders, it tends to favour the target firm's shareholders (Ang, Daher, & Ismail, 2019). Conversely, acquirer shareholders often experience adverse effects following the merger announcement (Dixit, 2020). Moreover, previous studies have suggested that excessive premiums may be paid in merger and acquisition transactions, leading to overvaluation of the transaction value .…”

Motivation and Performance Analyses of Suning’s Acquisition of Carrefour

“…Mergers and acquisitions (M&A) is a process by which a company acquires control of another company, for instance, by buying or taking over shares. M&A mainly includes horizontal M&A [1][2][3][4] , vertical M&A, and mixed M&A [5][6][7] . There are many motivations for M&A, including strengthening the integrative effect of enterprise supply chain, achieving the synergistic effect of M&A, and expanding the market.…”