Post-Takeover Performance Of Target Firms In India: Empirical Evidence

G.S. Sood and Surjit Kaur

Paradigm, 2004, vol. 8, issue 2, 58-67

Abstract: The present study aims at analyzing the post-takeover performance of the target firms. Since the empirical results of earlier studies present a mixed picture, it is necessary to examine the effects of takeovers on operating performance, efficiency, and stock prices in the Indian context. For this purpose, the study utilized a sample of 20 companies targeted during the financial year 1997-98. The mean value of a set of eight financial ratios based on a period of three years each immediately preceding and succeeding the takeover attempt were calculated and compared. The two profitability ratios viz. EBIT/Sales and ROCE indicate a significant decline in the performance of target companies in the post- takeover period. This gets reinforced by the fact that their efficiency as measured by assets turnover ratio also declined substantially. Also, the liquidity and solvency position of these companies, as shown by current ratio, cash flow to sales and debt-equity ratio, have not shown any significant improvement. Further, the market response to these takeovers as indicated by EV/EBIDA and market price to book values also presented a dismal picture. None of these ratios was found to be significantly different in the two periods when tested in terms of the t-test.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:sae:padigm:v:8:y:2004:i:2:p:58-67

DOI: 10.1177/0971890720040210

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