A research on the moderating effect of company demographics on the relationship between business combination and current ratio using structural equation model: A test of agency and transaction theories

Abstract

Globalization of economic activities created opportunities and threats for companies of different industries to be constantly evolving to compete with local and global competitors. For firms in emerging economies to be ahead of the pack, mergers and acquisitions are the way to go. M&As allow companies to expand faster as it assist them penetrate new markets and cross-sell into different customer bases, improve access to capital, and provide greater advantages over its competitors. With the noticeable relevance of business combination activities, this study aimed to determine whether company demographics strengthens or weakens the relationship between business combination and current ratio. Structural Model Equation (SEM) approach was used to analyze the data derived from 25 publicly listed companies in the Philippines over a 15-year horizon, 2000-2015. Findings suggest that there are direct relationships between business combination and current ratio as well as company demographics and current ratio. Also, the moderation of company demographics was proved to have a significant effect on the existing relationship of the independent and dependent variables. Agency and transaction cost theories supported the given results.