Probability of success of Indian Mergers and Acquisitions (M&As) –An Analysis

Abstract

Mergers and acquisitions have become common in the recent years for the companies to grow inorganically. How efficient these inorganic growths are is a concern for discussion. The present study is an attempt to analyse the performance of M&As by considering the short-term performance of the share prices through event study and the financial performance through Return on Equity (ROE) analysis. The study considers a sample of 08 listed Indian companies which have undergone M&A but the scope is made limited to the acquirer companies. The analysis is done for the period of 11 years which includes the event year, 5 years before the event and 5 years after the event. In the present study, it is a sad truth that the majority of the companies shoot up its ROE by through financial leverage. The financial leverage is more than one in all the companies considered under study indicates higher debt than equity. Companies are magnifying its returns through fixed cost bearing capital which is comparably a highly risky as ROE fell sharply if the assets decrease than expected. For the purpose of testing of hypothesis t-test has been employed. Based on the average abnormal returns of all the 8 companies together, it is inferred that the abnormal returns around the event are not statistically significant and the market does not allow its investors to make extra returns from their investments. It is concluded that the markets are efficient and it will absorb all the related information by not allowing the investors to make an additional profit than normal and also the probability of success of mergers and acquisitions is only 25% as 2 among 8 companies having positive impact on its stock prices in the short horizon.