Effect of Merger and acquisition on Financial Performance:Empirical Evidence from India

Abstract

The paper tries to explore is there any relationship between mergers and acquisitions andthe financial performance of acquiring companies by using the accounting-based measure. Mergers and acquisitions have been accepted as one of the important strategiesin corporate finance to create synergyfor the shareholder. A plethora of studies documented abroad relating to mergers and the financial performance of acquiring companies. The literature relating to the performance of acquiring companies by using accounting-based measure indicate there is a mixed view regarding wealth creation to shareholders. There has been a report observed inthe Indian context whether mergers create value to shareholders or not and the result recorded to have a contradictory finding. This motivates to explore whether there is any relationship of mergers with the financial performance of acquiring companies whether creating wealth for shareholders in long run based on accounting studies. The objective of this study to find out whether mergers generate value to the shareholders of acquiring firms by using accounting based as well as cash flow measures in the Indian context. The paper tries to examine whether any improvement in the post-merger performance of the acquiring firm in long run by using the cash flow model and financial ratio.  The study has taken the domestic merger of the listed firms for the period from 2009-2011 to analyze the effect of the merger on shareholder wealth for the 3 years afterthe merger in the Indian context. The results indicate there is an improvement in the post-merger performance of the acquiring firms in the long run of [-3, 3] years in the Indian context.