Academic journal article South Asian Journal of Management

Do Mergers & Acquisitions Pay off Immediately? Evidence from Mergers & Acquisitions in India

Academic journal article South Asian Journal of Management

Do Mergers & Acquisitions Pay off Immediately? Evidence from Mergers & Acquisitions in India

Article excerpt

Mergers and Acquisitions (M&As) are the vital growth strategies of corporates in the scenario of globalization and liberalization to face competition and move ahead. M&A have grown not only in volume but also in value. It is often stated that the companies go for inorganic growth strategies like M&A to improve performance. There is no clear-cut support from the literature about the effect of M&A on corporate performance. As per various studies, companies perform either better or worse after M&As. But the question arises how long the effect of mergers and acquisitions remain on the companies. The present study is an attempt to find out the time frame for knowing the effects on performance of manufacturing companies from M&A. The results suggest that the impact of M&A on companies are reflected in the immediate years specifically the event year and the post M&A one year.

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Mergers and Acquisitions (M&As) are considered as the important growth strategy for companies to satisfy the increasing demands of various stakeholders Krishnamurti and Vishwanath (2010). Literature on theories of M&A shows that the motives of companies behind going for M&A are gaining operating and financial synergy, diversification, achieving economies of scale and scope leading to cost and profit efficiency, acquiring management skills, increase market power, get tax benefits, (Weston et al, 2010; DePamphilis, 2010; Vijgen, 2007; Jensen, 1986; and Jayadev and Sensarma, 2007).

A number of studies have been done in M&A and post M&A firm performance (George, 2007). Most of the studies are done using accounting measures (Kumar and Rajib, 2007); Pazarskis et al, 2006; Ooghe et al, 2006; and Vanitha and Selvam, 2007) and event study (Aggarwal and Jaffe, 1996) methods to find out the shareholder returns through M&A. The studies also focused on the economic and financial condition of the companies in the post M&A period. But as far as literature reviewed there is insufficient evidence regarding the period for which the impact of M&A can be seen (George, 2007).

The present study is an attempt to find out the time frame for observing the performance of companies after M&A. With the increase in the volume, value and frequency of M&A deals in India, there is also a need for constructive and realistic framework for analysis of company performance after they went for M&A transactions (Krishnamurti and Vishwanath, 2010). Hence, the study has attempted to look into the performance of M&A transactions in recent times. This study examines the acquisition performance by explicitly analyzing the mobile average returns1 which are ignored by many of the earlier studies in this M&A research. In a nutshell, this paper try to bring together two sets of literature with empirical evidence from Indian manufacturing companies: one examining the post-acquisition performance; and the second examining the timing of returns in the post-acquisition period.


Review of Indian and International empirical studies has been made in the areas focusing on the research problem. This section reviews the relevant literature based on two aspects:

a. The timing of accrual of returns from M&A-Does M&A effects reflects immediately after the merger?

b. Returns based on performance parameters, viz., liquidity, solvency, and profitability-Does companies improves the its liquidity, solvency, profitability after merger, then when?


Liquidity refers to short-term availability of funds in the company to meet its current liabilities. It is one of the important parameters to judge the firm performance to meet its current obligations. Kumar and Rajib (2007) used the liquidity measures in terms of current ratio and quick ratio; solvency measures in terms of interest coverage ratios and total debt ratios and the profitability measures in terms of return on net worth and return on capital employed. …

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