Post merger profitability analysis of shareholders. Evidence from ...

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effects of merger process should affect our final comments about merger activity. 28
Post-Merger Profitability Corporate mergers can occur for many reasons: to achieve economies of scales and scope in production, increase firms’ size and achieve competitive advantage, increase innovation, achieve risk diversification and potential tax shields, increase market power, improve technological equipment and displace inefficient managers. However, the scope of this paper is to give emphasis on examining the mergers in terms of their profitability rather than the reasons they occur. Prior research into the profitability of takeovers has focussed on two distinct types of methodology. The first type has examined the financial characteristics of acquired and acquiring firms before and after the merger activity based on accounting data. The second method has measured the impact of merger activity on shareholders returns of firms engaged in the takeovers. Both types of research are viewed below. Post-Merger Performance Based on Accounting Data According to Meeks and Meeks (1981) profitability can increase either from a decrease in real costs or from a rise in prices relative to costs. However they note that since a rise in prices relative to costs can result from an increase in market power consequent upon the merger, a rise in profitability does not prove that efficiency has necessarily increased. On the other hand, if profitability declines, they argue that it is possible to conclude that efficiency has fallen. Singh (1975) compared the combined pre-merger profitability with the post-merger rate of return adjusted for the industry average. He used a sample of 77 firms and made two types of comparisons between firms acquired and those, which are not. First, he compared the characteristics of each acquired firm with the 29
Page 1 and 2: Post merger profitability analysis
Page 3 and 4: Acknowledgements The author would l
Page 5 and 6: Abbreviations AAR AR ARIMA BHAR CAP
Page 7 and 8: Chapter 1: Introduction In combinat
Page 9 and 10: Secondly, it is of interest to expl
Page 11 and 12: Reasons on Undertaking Mergers Ther
Page 13 and 14: Types of Merger Activity To have a
Page 15 and 16: Conglomerate Merger A conglomerate
Page 17 and 18: merging with another bank owns a co
Page 19 and 20: PV of AB = PV of A + PV of B + Gain
Page 21 and 22: or because of agency problem. On th
Page 23 and 24: solve the agency problem can also b
Page 25 and 26: the industry. Increasing concentrat
Page 27: cash flows at the expense of long-t
Page 31 and 32: Ravenscraft and Scherer (1989), usi
Page 33 and 34: Hostile versus friendly acquisition
Page 35 and 36: as perfect markets and no taxes, th
Page 37 and 38: the 1990s. The share of acquisition
Page 39 and 40: An alternative approach to shares c
Page 41 and 42: date, which is day 0 in the event t
Page 43 and 44: Daily versus monthly data Given tha
Page 45 and 46: parameters and a market-adjusted ab
Page 47 and 48: It is intended to calculate an aver
Page 49 and 50: df=N 1 +N 2 -2 where o M1 is the me
Page 51 and 52: and-hold abnormal returns, BHAR app
Page 53 and 54: R pt is the equal or value-weighted
Page 55 and 56: RUp t is the difference between the
Page 57 and 58: (3) Financial firms are of differen
Page 59 and 60: Blake, et al. (1999) had to accept
Page 61 and 62: year 2000, the 16 samples cumulated
Page 63 and 64: The figures highlight an immense ri
Page 65 and 66: Similar to the event period abnorma
Page 67 and 68: Positive alpha values are indicativ
Page 69 and 70: Dodd and Ruback (1978) work with mo
Page 71 and 72: too much for their targets on avera
Page 73 and 74: market would reflect all available
Page 75 and 76: characteristics, which are: the nat
Page 77 and 78: has no investment opportunities and
Page 79 and 80:
2003 3 -1.18 -0.70 2004 2 -0.06 -0.
Page 81 and 82:
For the combined firm value the mea
Page 83 and 84:
Details of the regression analysis
Page 85 and 86:
ules are found, Fama (1997) respond
Page 87 and 88:
Another reason that justifies the a
Page 89 and 90:
conclude, it is not difficult to fi
Page 91 and 92:
It is concluded that the Jensen and
Page 93 and 94:
Unresolved problems and suggestions
Page 95 and 96:
Brown, S.J., and Warner, J.B. (1985
Page 97 and 98:
eurostat.cec.eu.int. Available from
Page 99 and 100:
Han, K., Suk, D. and Sung H. (1998)
Page 101 and 102:
Miller, M. (1977). ‘Debt and Taxe
Page 103 and 104:
Shughart, W. F. and Tollison, R. D.
Page 105 and 106:
Anglo American 1999 0.66 0.13 Vodaf
Page 107 and 108:
ENI 2000 0.09 France Telecom 2000 -
Page 109 and 110:
ENI 2000 0.33 France Telecom 2000 -
Page 111:
Appendix 3 Performance Graph DS non
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