Impact of Merger and Acquisition on Financial Performance: Evidence from Construction and Real Estate Industry of India

Abstract

This article aims to examine the impact of mergers and acquisitions (M&A) on the financial performance of the construction and real estate industry, using the broad spectrum of financial ratios. The period of study is from 2011 to 2020, and paired t-test methodology has been used. It is hypothesized that there is a significant difference in the pre-M&A period and post-M&A period. The study findings conclude that profitability ratio and liquidity ratio have improved significantly, whereas leverage ratio exhibits no change in performance. In the efficiency ratio, the fixed-assets turnover ratio substantially improves, but the total asset turnover ratio and current asset turnover ratio show a slight improvement. The study concludes that the Indian construction and real estate company’s financial performance has improved overall for the acquiring firms during the post-M&A period. The study implies that the construction sector supports the synergy hypothesis, stating that M&A will improve synergy during the post-M&A period because of the consolidation of two firms’ resources.

Merger Decisions, Accounting Information and Performance Stability Inside and Outside of Economic Crisis Periods: Evidence From Greece

“…The results of this study support that the performance subsequent of mergers is not significantly different for the merged companies and is similar with other past studies (Cosh et al, 1980;Chatterjee & Meeks, 1996;Healy et al, 1992;Ghosh, 2001;Sharma & Ho, 2002;Al-Hroot, 2016;Pantelidis et al, 2018). In addition, these results are in contrast with several other past studies that found an improvement or value creation after mergers (Utton, 1974;Meeks, 1977;Kumar, 1984;Mueller, 1985;Lang et al, 1989;Netter et al, 2011;Dargenidou et al, 2016;Alhenawi & Stilwell, 2017;Gupta et al, 2021) or a decrease in business performance, profitability or additional leverage for the merged companies (Dickerson et al, 1997;Pawaskar, 2001;Yeh & Hoshino, 2002;Harford et al, 2009;Bhabra & Huang, 2013;Jandik & Lallemand, 2014;Harrison et al, 2014). Furthermore, almost the same results are received using the median for the comparisons with Mann-Whitney tests (as are tabulated in Table 5b).…”

“…The mean from the sum of each quantitative variable is computed and further compared with t-tests in different subsamples of pre-and post-merger period. The mean of a data set is widely adopted in the relevant literature of depicturing the impact from mergers and acquisitions (Al-Hroot, 2016;Pantelidis et al, 2018;Aggarwal & Garg, 2019;Gupta et al, 2021;Lois et al, 2021). However, in order to avoid mean's various limitations and verify the received results from mean's analysis, the study computes the median too from the sum of each accounting measures and financial ratio and employs a non-parametric test, Mann-Whitney test, for median comparisons (Mueller, 1980;Cosh et al, 1980;Sharma & Ho, 2002).…”

“…To sum up, as for the effect of the mergers and whether they are good for a company that chooses to merge, there have been many other views than the above over time: some researchers again consider that there is a positive result or value creation after mergers (Lang et al, 1989;Netter et al, 2011;Dargenidou et al, 2016;Alhenawi & Stilwell, 2017;Gupta et al, 2021), some others claim a negative one or a decrease in business performance, profitability or additional leverage for the merged companies (Pawaskar, 2001;Yeh & Hoshino, 2002;Harford et al, 2009;Bhabra & Huang, 2013;Jandik & Lallemand, 2014;Harrison et al, 2014) and other researchers supports a pattern familiar to the previous literature: no significant change from mergers in the performance of the merger-involved companies (Healy et al, 1992;Ghosh, 2001;Sharma & Ho, 2002;Al-Hroot, 2016;Pantelidis et al, 2018).…”

Profitability and financial performance of Italian real estate companies: quantitative profiles

“…More recently, in 2022, Khuntaweetep and Koowattanatianchai created an econometric model for strategic planning and ROE forecasting of real estate development companies in Thailand. Even more recently, in 2023, Gupta et al . examined the impact of mergers and acquisitions on the financial performance of the construction and real estate industry using numerous ratios.…”

Mergers and Acquisitions and their effects on Firms objectives: African perspective

“…The primary goal of the study was to examine how mergers from 2006 to 2012 affected the performance of the bidding firm. The selected sample revealed a reduction in profitability, demonstrating that not all mergers and acquisitions boost performance and that other ways of expansion, such as consolidation and reorganization, should be explored (Bijoy Gupta, 2017). In his investigation into how mergers and acquisitions affect banks' financial health (a survey of commercial banks in Kenya), Bijoy Gupta (2017) found that the majority of firms merge in order to increase their effectiveness by increasing their market share.…”