The current study is aimed at checking the impact of the acquisition on the various short-run and long-run firm characteristics like abnormal returns, cost efficiency, and operational hedging of acquirer firms. Results have been analyzed for Pakistan Stock Exchange for a period of 2006 to 2019. The acquisition may signal the future prospects of both acquirer and target firms. The event study technique indicates the significant abnormal returns after 3 days of the acquisition announcement. However, pre-event statistics indicate abnormal returns for 5 out of 7 days before acquisition announcement. Researchers have calculated the cost efficiency scores for bidding firms three years prior to the acquisition and three years post-acquisition. Overall results suggest an improvement in the efficiency of the financial firms' overtime period. The non-financial sector is indicating opposite results where most of the firms are showing a declining trend in efficiency after the acquisition. Next, the impact of the acquisition on the operational volatility is checked. The empirical results have shown a large level decrease in the operational income volatility after the takeover deal. It shows that combined firms after acquisition brings the benefit of diversification thus reducing volatility and increasing operational hedging which may ultimately reduce financial hedging. The findings of the study may help regulators as well as acquiring companies to know the potential effects of the acquisition announcement.
This article explores the capital structure composition of group-affiliated firms. We find that group member firms choose to accrue higher debt ratios compared to non-group counterparts. Further disentangling the higher debt ratios of group-affiliates, we find risk-sharing or co-insurance effect whereby business groups enable member firms to share risks through income-smoothing and intra-group reallocation of resources. Our results suggest that business groups act as internal capital markets, assist affiliated firms overcome financial constraints, and ease access to external capital. Lastly, our study shows that group affiliations positively contribute to firms’ better financial performance relative to the non-group firms.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.