Emperical research on mergers and corporate performance

Empirical Research on mergers and corporate performance in India

Anand Kumar AdeppaSMBA10003

Study

• Abnormal returns to Shareholders during the time

• Reported financial results before merging• Reflections of stock prices at the time of

acquisition announcement

Review by B Lev and G Mandekar

No significant difference in• Profitability of firms with related and

unrelated diversification.Superior profitability with related mergers

Analysis

• 57 large mergers between 1995 and 2002Sample • 10% of own asset size• Financial data for 3 years• Not more than 4 mergers in a financial yearDesign Problems• Systematic difference in size• Acquisitions on above normal performance

Methodology

Part A• Operating cash flows• Market value base• Merger Financing • Comparing post Merger and Pre Merger DataPart B• Same with denominator with book value of

assets and sales

Post Merger performance

Median Changes in Cash flows and Assets

Cash Flow Return on Market Value of Assets

Cross Sectional Regression results

• Estimation

Final Summary

The study was to measure the cash flows after mergers in terms of

• Market value of Assets• Book Value of Assets• Sales ValueBook value and Sales Value indicate that

operating performance improves but market value does not support the above hypothesis.