Impact of Acquisition on Corporate Performance in Indian Manufacturing Sector

Topics: Mergers and acquisitions, Statistical hypothesis testing, Statistical significance Pages: 31 (8845 words) Published: December 25, 2012
ZENITH
International Journal of Multidisciplinary Research Vol.1 Issue 3, July 2011, ISSN 2231 5780

IMPACT OF ACQUISITION ON CORPORATE PERFORMANCE IN INDIAN MANUFACTURING SECTOR DR. BABLI DHIMAN*; MR. BILAL A. PARRAY**
*Deptt. of Management, Lovely Professional University, Phagwara. **Deptt. of Management, Lovely Professional University, Phagwara.

ABSTRACT Acquisitions are used to gain competitive advantage over other firms through gaining greater market share for improving competitiveness of companies and, entering new markets and geographies, capitalizing on economies of scale and broadening the portfolio to reduce business risk, etc. India has emerged as one of the top countries with respect to merger and acquisition deals. Indian companies have been actively involved in acquisitions in India domestically as well as internationally, as India increase its participation in M&A deals. Therefore this paper has been designed with an aim to study the impact of acquisitions on the financial performance of acquiring firms by examining some pre-acquisition and post-acquisition financial ratios of these firms and to see the differences in the pre acquisition and post acquisition ratios of the firms that go for acquisitions. Selected accounting variables (financial characteristics) are introduced to measure financial performance and compare pre- and post-acquisition firm performance for three years before and after M&A, while the year of acquisition event is omitted from comparisons. The result shows that acquisitions do not have any significant impact on profitability of the firms in the post acquisition period. KEYWORDS: Acquiring firm, Acquisitions, Financial Performance, Impact.

INTRODUCTION In today's globalized economy, competitiveness and competitive advantage have become the buzzwords for corporate around the world. Corporate worldwide have been aggressively trying to build new competencies and capabilities, to remain competitive and to grow profitably. The world is in a state of flux, being influenced by the forces of globalization and fast technological changes and as a consequence firms are facing intense competition. To face the challenges and explore the opportunities, firms are going for inorganic growth through various strategic alternatives like mergers and acquisitions (M&A), strategic alliances, joint ventures etc. The M&A are arguably the most popular strategy among firms who seek to establish a competitive advantage over their rivals. In the last seven years, the value of acquisitions has increased dramatically. There are various reasons behind firms going for mergers and acquisitions. The main corporate objectives are to gain greater market power, gain access to innovative capabilities, thus reducing the risks associated with the development of a new product or service, maximize efficiency through economies of scale and scope and finally in some cases, reshape a firm‟s competitive scope.

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ZENITH
International Journal of Multidisciplinary Research Vol.1 Issue 3, July 2011, ISSN 2231 5780

The M&A deals are common not only in the developed countries but also have become more apparent in the developing counties. In the pre-liberalization period, in India, corporate restructuring had not been uncommon though the frequency was not much. In early 1990s mergers, acquisitions, takeovers and other strategic alliances in the corporate sector geared up for a large scale restructuring in the face of cut throat competition from multinational corporations as well as exploiting new opportunities. The phenomenon recorded an upsurge in the wake of liberalization measures resulting into lessening the Government controls, regulations and restrictions. ACQUISITIONS An acquisition or takeover is the purchase by one company of controlling interest in the share capital, or all or substantially all of the assets and/or liabilities, of another company. A takeover may be friendly or...
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