Effects of Multinational Mergers and Acquisitions on Shareholders’ Wealth and Corporate Performance

Anita Shukla and Mouni Geoffrey Gekara

The IUP Journal of Accounting Research and Audit Practices, 2010, vol. IX, issue 1 & 2, 44-62

Abstract: In today’s globalized economy, Mergers and Acquisitions (M&A) are being increasingly used the world over for improving the competitiveness of companies through gaining greater market share, broadening the portfolio to reduce business risk for entering new markets and geographies, capitalizing on economies of scale, etc. This research is aimed at studying the impact of mergers on the operating performance of the acquiring firm by examining pre-merger and post-merger financial ratios. It also examines the behavior of share prices 20 days before and after the merger of Tata Steel with Corus Steel. Researches on share price performance so far suggest that the acquiring firm generally earns positive returns prior to the announcement day, but less than market portfolio in the post-merger period. The result of this study fails to support our hypothesis that merger gains are captured at the beginning of a merger program. It is found that stockholders suffer loss for different window periods around the announcement period. The study begins with theories of M&A, a brief history of the sample units, the significance of the study, the study objectives, and the methodology followed. Next, it analyzes pre-merger and post-merger operating performance, and discusses the literature on share price, the models used for the analysis, and the results on share prices. Finally, it tests our hypothesis by using paired T-test, before drawing conclusions.

Date: 2010
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