Do mergers and acquisitions create value?

Abstract

Purpose The purpose of this paper is to study whether mergers and acquisitions (M&As) create value in Indian and Chinese markets. Design/methodology/approach The authors study abnormal returns (AR) created by the acquiring firms in Indian and Chinese markets relating to M&A announcements, using the following three different statistical methods: i.e. mean, market and ordinary least squares adjusted return models. Findings On average, M&A announcements do not create value for the firms in Chinese and Indian economies. For the mean model, M&As create value for Chinese firms, whereas for the Indian firms no such value is created for the same event windows. The regression results showed that debt has a positive impact on the AR and cumulative average abnormal returns at 1, 5 and 10 per cent significance levels, respectively. Research limitations/implications This study suggests increasing the sample size and period and using the instrumental variables regression to ensure the estimator’s impartiality, consistency and efficiency. With the investigative period surrounding a financial crisis, the estimators may have omitted bias. Originality/value Multiple methods used in this paper made it possible to capture the level of method variance in the AR, which is unusual in the Chinese and Indian context. Hence, the current study provides local knowledge and further strengthens the literature about M&As. The authors also regress AR with firm-specific factors, the consideration of which is scarce in the previous literature. Furthermore, much of what the authors know about M&A is relevant to developed economies.

Impact of merger on stock returns and economic value added (EVA) of the acquiring firms: a study from Indian corporate sector

“…The results obtained concur with the findings of Hackbarth and Morellec (2008), Amewu (2014), Fatemi et al (2017), Kinatender et al (2017, Ramakrishnan (2010) and Reddy at al. (2019).…”

Long-Term Abnormal Returns during Pre and Post Merger: Evidence from India

“…Jain et al (2018) analysed 139 cross border acquisitions done by Indian companies and concluded that cross border acquisitions have statistically significant and positive valuation effects for the Indian bidders in the short-run. On the other hand, Reddy et al (2019) found M&A announcements do not create value for the firms in Chinese and Indian economies.…”

Do Corporate Consolidations Affect the Competitive Positioning of Non-Financial Firms in China?

“…The predominant consensus in the extant empirical literature posits that there are three fundamental features which shape and precondition the M&A activities of Chinese companies. To start with, Chinese companies exhibit a significantly higher proclivity to acquire companies with access to resources (Reddy et al, 2019), while the dominant motive in most acquisitions completed by companies in mature markets is the procurement of synergies and cost optimization. This explains why transactions completed by Chinese companies are likelier to involve targets with higher debt load and lower operational performance, than those selected by their peers from mature markets (Fuest et al, 2021).…”