The Impact of Merger on Shareholders’ Wealth
Scholars www.setscholars.org Knowledge is Power May – 2012 Volume – 1, Issue – 2 Article #01
IJAR-BAE Research Paper ISSN: 1839-8456
The impact of merger on shareholders’ wealth
Emon Kalyan Chowdhury
Lecturer & Assistant Proctor, Faculty of Business Studies, Premier University, Chittagong, Bangladesh Corresponding author’s e-mail: emonkalyanchy@gmail.com
Abstract
The purpose of this paper is to know the impact of merger on the shareholders of different companies. This is an attempt to evaluate the impact of merger on companies through a database of thirty two companies. Study was conducted by collecting the monthly stock prices of the companies prior to merger and monthly stock prices of the company post-merger. The study shows that companies can use merger as a tool not only to grow but also to prevent competition, increase their market share, improve their performance etc. This study shows that the synergy has worked in case of the sample selected; they generally involve improving the performance of incumbent management or achieving a form of synergy. The apparent reason for companies to merge is to make profits larger than the joint profits of the merging companies. This study proves that the mergers have added value to the companies and the shareholders. Market capitalisation of the companies has increased after the merger, which ultimately indicates shareholders gain. The study concludes that mergers can be used as an effective tool to improve the performance of the company.
Keywords: Merger, Wealth creation, Synergy, Market capitalization. Citation: Chowdhury EK (2012), The impact of merger on shareholders’ wealth. IJAR-BAE 1(2): p. 1 – 11.
Received: 23-04-2012
Accepted: 09-05-2012
Copyright: @ 2012 Chowdhury EK et al. This is an open access article distributed under the terms of the Creative Common Attribution 3.0 License.
1.0 INTRODUCTION
Merger is the combining of two or more companies, generally by offering the stockholders of one company
IJAR-BAE Research Paper ISSN: 1839-8456
The impact of merger on shareholders’ wealth
Emon Kalyan Chowdhury
Lecturer & Assistant Proctor, Faculty of Business Studies, Premier University, Chittagong, Bangladesh Corresponding author’s e-mail: emonkalyanchy@gmail.com
Abstract
The purpose of this paper is to know the impact of merger on the shareholders of different companies. This is an attempt to evaluate the impact of merger on companies through a database of thirty two companies. Study was conducted by collecting the monthly stock prices of the companies prior to merger and monthly stock prices of the company post-merger. The study shows that companies can use merger as a tool not only to grow but also to prevent competition, increase their market share, improve their performance etc. This study shows that the synergy has worked in case of the sample selected; they generally involve improving the performance of incumbent management or achieving a form of synergy. The apparent reason for companies to merge is to make profits larger than the joint profits of the merging companies. This study proves that the mergers have added value to the companies and the shareholders. Market capitalisation of the companies has increased after the merger, which ultimately indicates shareholders gain. The study concludes that mergers can be used as an effective tool to improve the performance of the company.
Keywords: Merger, Wealth creation, Synergy, Market capitalization. Citation: Chowdhury EK (2012), The impact of merger on shareholders’ wealth. IJAR-BAE 1(2): p. 1 – 11.
Received: 23-04-2012
Accepted: 09-05-2012
Copyright: @ 2012 Chowdhury EK et al. This is an open access article distributed under the terms of the Creative Common Attribution 3.0 License.
1.0 INTRODUCTION
Merger is the combining of two or more companies, generally by offering the stockholders of one company
References: Collan, Mikael; Kinnunen Jani (2011). "A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation". Journal of Real Options and Strategy 4 (1): 117-141 4. Deepak K Dutta & George E. Pinches,” Factors Influencing Wealth Creation From Mergers And Acquisition: A Meta Analysis” Strategic Management Journal, Volume (Year): 13 (1992) Pages: 6784 5. Eckbo, B. E., 1983, “Horizontal Mergers, Collusion, and Stockholder Wealth,” Journal of Financial Economics, 11, 241-273. Fee, C. E., and S. Thomas, 2004, “Sources of Gains in Horizontal Mergers: Evidence from Customer, Supplier, and Rival Firms,” Journal of Financial Economics, 74, 423-460. Mergers and Acquisitions Lead to Long-Term Management Turmoil Newswise, Retrieved on July 14, 2008.