The Impact of Industry Commonality on Post-merger Performance

Abstract

The purpose of this paper is to identify the impact of industry commonality on post-merger performance and further examine whether the acquiring firms have the abnormal returns after mergers and acquisitions which is evidenced by many prior studies. Through the US sample of 3016 observations consisting of 1732 related and 1284 unrelated acquisitions from 1995 to 2009, we find that the abnormal returns of acquisitions during three years are all negative, but the post-performances of related acquisitions is significantly better than those of unrelated acquisitions. Moreover, while insignificant in the first year, the related acquisitions have significantly positive impact on market performances in the second and third years.

Merger and acquisition motives and outcome assessment

“…In the postmerger process, these motives form the basis for the assessment of merger outcome. The logical sequence of this process can be substantiated by referring to evaluation theory (Jackson, ; Lin & Chou, ; Scriven, ). Our findings also shed light on the paradox that M&A transactions continue to develop despite the poor performance found in many empirical studies (Bertrand & Betschinger, ).…”

“…Motives play a major role in M&A operations, since they determine the selection of target firms, their valuation, and the assessment of performance (Porrini, ) as well as the organizational outcomes of the operation (Cording, Harrison, Hoskisson, & Jonsen, ; Kiessling et al, ). According to Brouthers et al (), M&A motives can be divided into three categories: (a) improved economic performance (Brockman, Rui, & Zou, ; Trautwein, ; Walter & Barney, ); (b) personal benefits for managers, for example, prestige or increased remuneration (Berkovitch & Narayanan, ; El‐Khatib, Fogel, & Jandik, ; Trautwein, ); and (c) increased market power (Boateng, Qian, & Tianle, ; Lin & Chou, ; Walter & Barney, ; Yamanoi & Sayama, ). Managerial motives such as status and power associated with managing larger firms tend to be associated with low performance (Hayward & Hambrick, ).…”

“…For example, Bertrand and Betschinger () show that M&As increase the value of target firms, while the outcome is less clear for acquirers. Several scholars argue that factors used for performance measurement are inaccurate, which may explain inconsistencies in empirical findings (Berkovitch & Narayanan, ; Brouthers, van Hastenburg, & van den Ven, ; Deng, ; Lin & Chou, ).…”

Post-acquisition control strategy and cross-border acquisition performance of Chinese MNEs: a fsQCA approach

“…2.2.2 Business relatedness. The mainstream M&A studies observe that acquisition of business related companies helps the acquirer to get more efficient utilization and allocation of resources of both parties, thus reducing costs and generating synergy which could improve acquisition performance (Galavotti et al, 2017;Graebner et al, 2017;Lin and Chou, 2016;Palich et al, 2000). However, some researchers (e.g.…”

Effect of Acquisition Type on Industrial Development in Emerging Markets: Evidence From China

“…Through intra-industry acquisitions, firms can rapidly acquire complementary resources and capabilities, achieve economy of scale, and lead to scope economy effects (Deng & Yang, 2015;Gaur et al, 2013). Through crossindustry acquisitions, companies can obtain more market entry opportunities, get into a new business more quickly, share risks, and get potential synergies (Lin & Chou, 2016;Zaremba et al, 2018). With a rapid economic growth in China, corporate acquisitions of Chinese firms show obvious characteristics of high frequency, large scale, and massive quantity domestically and internationally (Cai & Tian, 2019;Deng & Yang, 2015).…”