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Do Australian firms engaging in mergers and acquisitions experience performance improvements?

Bellingham, David and Cooper, Jarrad (2010)
Department of Business Administration
Abstract
Purpose: To determine if mergers and acquisitions are value creating or destroying in the Australian market, identifying the individual sources of this value creation or destruction, and attempt to relate the post-merger performance to changes in equity prices around the announcement date of the bid.
Methodology: A quantitative approach comparing pre and post merger firm performance with a median and regression based analysis. An equity market event window study is also conducted by using a regression to calculate market model parameters and then measuring abnormal equity returns around the announcement date.
Theoretical perspective: Mergers are motivated by the possibility of operating and financial synergies, which result in economic... (More)
Purpose: To determine if mergers and acquisitions are value creating or destroying in the Australian market, identifying the individual sources of this value creation or destruction, and attempt to relate the post-merger performance to changes in equity prices around the announcement date of the bid.
Methodology: A quantitative approach comparing pre and post merger firm performance with a median and regression based analysis. An equity market event window study is also conducted by using a regression to calculate market model parameters and then measuring abnormal equity returns around the announcement date.
Theoretical perspective: Mergers are motivated by the possibility of operating and financial synergies, which result in economic value creation. The market is efficient and the equity re-evaluation of the bidder and target firms at the announcement of the merger reflects the expected economic value creation from the merger. Empirical foundation: A study of mergers and acquisitions during the period 1997-2006 has been empirically studied to obtain the data needed.
Conclusions: Firms that engage in mergers and acquisitions experience significant improvements in operating performance and profitability following the merger. Operating synergies exist in the form of an improvement in the operating expense ratio. Financial synergies exist in the form of a lower cost of debt and expanded debt capacity. We find evidence that merging firms increase their level of capital expenditure post-merger, which is related to the post-merger performance improvements. Further, we find positive abnormal equity returns for target firms at the announcement of the merger, and a relationship between combined bidder and target abnormal returns and the post-merger performance improvements. (Less)
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author
Bellingham, David and Cooper, Jarrad
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Synergies, Mergers and Acquisitions, Australia, Announcement Effect, Post-merger, Operating performance, Value Creation., Management of enterprises, Företagsledning, management
language
Swedish
id
1625339
date added to LUP
2010-06-07 00:00:00
date last changed
2012-04-02 18:07:44
@misc{1625339,
  abstract     = {Purpose: To determine if mergers and acquisitions are value creating or destroying in the Australian market, identifying the individual sources of this value creation or destruction, and attempt to relate the post-merger performance to changes in equity prices around the announcement date of the bid.
Methodology: A quantitative approach comparing pre and post merger firm performance with a median and regression based analysis. An equity market event window study is also conducted by using a regression to calculate market model parameters and then measuring abnormal equity returns around the announcement date.
Theoretical perspective: Mergers are motivated by the possibility of operating and financial synergies, which result in economic value creation. The market is efficient and the equity re-evaluation of the bidder and target firms at the announcement of the merger reflects the expected economic value creation from the merger. Empirical foundation: A study of mergers and acquisitions during the period 1997-2006 has been empirically studied to obtain the data needed.
Conclusions: Firms that engage in mergers and acquisitions experience significant improvements in operating performance and profitability following the merger. Operating synergies exist in the form of an improvement in the operating expense ratio. Financial synergies exist in the form of a lower cost of debt and expanded debt capacity. We find evidence that merging firms increase their level of capital expenditure post-merger, which is related to the post-merger performance improvements. Further, we find positive abnormal equity returns for target firms at the announcement of the merger, and a relationship between combined bidder and target abnormal returns and the post-merger performance improvements.},
  author       = {Bellingham, David and Cooper, Jarrad},
  keyword      = {Synergies,Mergers and Acquisitions,Australia,Announcement Effect,Post-merger,Operating performance,Value Creation.,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {Do Australian firms engaging in mergers and acquisitions experience performance improvements?},
  year         = {2010},
}