Impact of Mergers and Acquisitions on Accounting-based Performance of Acquiring Firms in India

Abstract

Purpose: Merger is a corporate restructuring strategy that affects the performance of the company on many parameters. This study aims to examine the growth of M&A transactions in India in last two decades and the impact of merger on the accounting-based performance of the acquiring company. Methodology: The data of 68 mergers during the year 2007-08 - 2011-12 is analysed to capture the said impact. The accounting-based performance is measured on seven variables divided into three categories- profitability, liquidity and solvency. The accounting-based performance five years’ pre-merger is compared with five years’ post-merger. The similar comparison is done for 3 years pre and post-merger. Average of all the 7 parameters pre and post-merger are compared arithmetically and then using paired sample ‘t’test. The firms were also divided into manufacturing and service sector firms to see the impact of merger on different categories of firms. Findings: We found that merger has significantly impacted profitability and liquidity of the acquiring firm positively in five years but had no significant impact on solvency position of the company. Service sector firms have outperformed manufacturing firms and started showing significant improvement in accounting variables in medium term. Originality: We assure the originality of the work done in this article.