Mergers and acquisitions: a review (part 2)

Abstract

Purpose This paper aims to review the relevant literature on mergers and acquisitions in an attempt to provide a comprehensive account of what we know about mergers and which parts of the puzzle are still incomplete. Design/methodology/approach This literature review consists of three key sections. The first part of this paper summarises the literature on the cyclical nature of mergers referred to in the literature as merger waves. The second section reviews the causes and consequences of takeovers; it first reviews the causes, or drivers, of acquisitions, while focusing on the fact that acquisitions happen in waves and then reviews the consequences of takeovers, with a predominant focus on the impacts of mergers on the economic performance of acquirers. The third part of the review summarises the theories, as well as previous empirical studies, on determinants of announcement returns and post-acquisition performance of combined firms. Findings Merger activity demonstrates a wavy pattern, i.e. mergers are clustered in industries through time. The causes suggested for this fluctuating pattern include industry- and economy-level shocks, mis-valuation and managerial herding. Market reaction to announcement of acquisitions is, on average, slightly negative for acquirer stocks and significantly positive for target stocks. The combined abnormal return is positive. These findings have been consistent over several decades of investigation. Prior research also identifies a number of factors that are related to performance of acquisitions. These factors are categorised and reviewed in five different groups: acquirer characteristics, target characteristics, bid characteristics, industry characteristics and macro-environment characteristics. Originality/value This review illustrates a number of issues. Prior research is heavily biased towards gains to acquirers and factors that affect these gains. It is also biased towards finding sources of value creation through mergers despite the fact that several theories suggest that mergers can be value-destroying. In fact, value destruction is often attributed to managers’ self-interest (agency problem) and mistakes (hubris). However, the mechanisms through which mergers destroy value are rarely addressed. Aside from that, the possibility of simultaneous creation and destruction of value in acquisitions is not often considered. Finally, after several decades of investigation, a key question is not completely answered yet: “What are the sources of value in mergers and acquisitions?”

The Effect of Acquisition Synergy on Firm Perfomance moderated by Firm Reputation

“…Similar studies have been investigated by other researchers, such as (Cheny & Gayle, 2018;Hamza, Sghaier, & Thraya, 2016;Meier & Schier, 2016;Rabier, 2017;Tarba, Ahammad, Junni, Stokes, & Morag, 2017;Yaghoubi, Yaghoubi, Locke, & Gibb, 2016) who examine the synergy of operations as a goal of acquisition of company performance. Whereas (Duan, & Jin, 2019;Duan & Li, 2015;Erel, Jang, & Weisbach, 2015;Hamza et al, 2016;Yaghoubi et al, 2016) examine financial synergy as an acquisition goal to company performance but there is no research that uses firm reputation as a mediator.…”

“…Similar studies have been investigated by other researchers, such as (Cheny & Gayle, 2018;Hamza, Sghaier, & Thraya, 2016;Meier & Schier, 2016;Rabier, 2017;Tarba, Ahammad, Junni, Stokes, & Morag, 2017;Yaghoubi, Yaghoubi, Locke, & Gibb, 2016) who examine the synergy of operations as a goal of acquisition of company performance. Whereas (Duan, & Jin, 2019;Duan & Li, 2015;Erel, Jang, & Weisbach, 2015;Hamza et al, 2016;Yaghoubi et al, 2016) examine financial synergy as an acquisition goal to company performance but there is no research that uses firm reputation as a mediator. Based on research by (Cheny & Gayle, 2018;Fong, Lee, & Du, 2013;Hassan, Ghauri, & Mayrhofer, 2018;Jenner, Sautner, & Suchard, 2017;Matarazzo, De Vanna, Lanzilli, & Resciniti, 2017;Sigera & Cahoon, 2018;Waeraas & Sataøen, 2015) operational synergies and financial synergies as acquisition goals have an impact on (Cabral, 2016;Cellier & Chollet, 2016;Chalençon, Colovic, Lamotte, & Mayrhofer, 2017;Erden, Klang, Sydler, & von Krogh, 2015;Gao, Zuzul, Jones, & Khanna, 2017;Haleblian et al, 2017;Popli, Ladkani, & Gaur, 2017;Zavyalova, Pfarrer, Reger, & Hubbard, 2016) firm reputation and have a significant positive relationship on company performance.…”

Volatility smiles when information is lagged in prices

“…CARs for (+1;-1) in Yilmaz and Tanyeri (2016), Kinateder et al 2017 andYaghoubi et al 2016a and 2016b are statistically significant. More, Yaghoubi et al 2016a and2016b show that the abnormal performance in mergers is statistically significant. The statistical significance of differences in means might be interpreted as illustrating that contributions of acquirers and target firms to the merged entity are different.…”

“…Valuation error is applicable to the study as real estate appraisers are all to some level to misprice properties. Hubris is most likely not to apply as REIT mergers are friendly in nature (seeWomack 2012) Yaghoubi et al 2016b. show that managers whose compensation is equity based, pay less premium.…”

Does M&A Financing Affect Firm Performance under Different Ownership Types?

“…In transition economies and emerging market countries, financing activities are influenced greatly by government performance goals. The relation between M&A financing methods and M&A performance is affected by the characteristics of acquirers, such as ownership [33]. Prior research in this area maintains that the government's preference leads to higher M&A performance for SOEs than for POEs [2].…”