The impact of acquisitions on firm performance: A review of the evidence

Abstract

This paper presents a review of empirical research on the impact of acquisitions on firm performance. The evidence suggests that, in the short run, acquisitions have at best an insignificant impact on shareholder wealth. Long-run performance analysis reveals overwhelmingly negative returns, while the evidence using accounting performance measures is mixed. The review also examines the impact of bid characteristics on performance. The acquisition of hostile targets, transactions that are paid for with cash and acquisitions of larger targets are associated with superior (or at least less negative) performance, while there is mixed evidence on the benefits of related acquisitions. A number of recent studies find that acquirers with superior pre-bid performance tend to experience significant underperformance in the post-bid period.

Do synergies exist in related acquisitions? A meta-analysis of acquisition studies

“…While Bruner (2002;2005) talks about 30% of deals failing, Jansen estimates 50%-75%. Overall, the majority of empirical literature on bidder performance in acquisitions has failed to provide consistent evidence for increased shareholder wealth (Tuch and O'Sullivan 2007). After reviewing the M&A literature focusing on merger policy in the US in great detail Mueller (1997) concludes: "It is possible, judging from the available evidence on the effects of mergers, that the US economy would be as or even more efficient today, if there had been no mergers over the last 50 years.…”

“…In developing our working hypothesis, we follow Tuch and O'Sullivan (2007), who conclude after a review of the literature on M&A and performance that there is some support for a positive effect on wealth creation in business related acquisitions:…”

“…The most common argument for pursuing acquisitions is to increase the wealth for shareholders of the acquiring company (Tuch and O'Sullivan 2007): Acquisitions can create synergies, increase a firm's market share and bargaining power, or lead to improved risk diversification. Nonetheless, a large number of M&A are considered as failures and do not increase shareholder wealth.…”

An Analysis of Short-Term Performance of UK Cross-Border Mergers and Acquisitions by Chinese Listed Companies

“…But there still is no agreement on the performance of the acquirer. Quite a few scholars, for example, Conn (1985) and Jarrel et al (1988) state that the acquirer usually shows positive performance after implementing the merger and acquisition, but, based on the research of Tuch and O'Sullivan (2007), the bad performance of the acquirer would not show for a long time so short-term studies may be misleading. Of 44 studies analysed by Bruner (2002), he concluded that acquiring firms have negative returns and targets are have positive returns.…”

Determinants of Cross-Border Mergers and Acquisitions: A Comprehensive Review and Future Direction

“…In this vein, we find very few review papers referring to cross-border acquisitions for various reasons, namely global and regional perspectives (Hopkins, 1999), stylized reviews on theoretical foundations (Chapman, 2003;Shimizu, Hitt, Vaidyanath, & Pisano, 2004), and post-merger integration issues (Öberg & Tarba, 2013). On the other hand, we also come across studies reviewing the M&A stream largely through accounting and finance lens (e.g., Martynova & Renneboog, 2008a;Tuch & O'Sullivan, 2007), and bibliometric papers (e.g., Ferreira, Santos, de Almeida, & Reis, 2014;Reddy, 2015b). Albeit, we propose that a comprehensive review of factors affecting cross-border investments and acquisitions is missing in the literature.…”