Unveiling the Endogenous Relationship Between Technical Efficiency and Value Creation in Mergers and Acquisitions in Nigeria

Abstract

There is a growing literature on how the beneficial impacts of horizontal mergers and acquisitions (M&A) should be measured. Thus far, however, there have been few studies addressing endogeneity between technical efficiency and value creation: they tend to present a bidirectional and simultaneous relationship. This research contributes to the debate by investigating the impact of voluntary horizontal M&A on these metrics in Nigeria between 1995 and 2012, in light of the individual performance of bidders, targets, and the resulting corporate companies. First, technical efficiency, technology gap ratio, and returns-to-scale estimates were computed based on a meta-frontier DEA approach, together with a set of contextual variables that encompass performance indicators which reflect the value creation process. Then, robust regressions were used to discriminate these efficiency estimates in terms of such business-related variables, correcting for endogeneity and controlling for industry and trend effects. The results reveal that these contextual variables significantly impact virtual efficiency and returns-to-scale levels, and that there is a trade-off between efficiency and value creation at some point in the merging process. Managerial implications are derived.