COMPARING COMPANY PERFORMANCE BASED ON TYPES OF MERGERS AND ACQUISITIONS IN THE FINANCIAL SECTOR
Keywords:
Mergers and acquisitions, horizontal M&A, vertical M&A, conglomerate M&A, profitability, enterprise value, stock price
Abstract
Some literature indicates that mergers and acquisitions generally have a negative effect on the companies involved. This study aims to analyze whether mergers and acquisitions affect the performance of financial sector companies in the short and medium term. Based on the types of mergers and acquisitions carried out, company performance is measured by profitability, enterprise value (company value), and stock returns. The sample in this study totalled 165 merger and acquisition transactions involving financial sector companies that occurred in the United States during the period from January 2009 to January 2019. Using multiple linear regression, this study found that conglomerate M&A was the best in increasing short-term performance, while horizontal M&A was the best in improving medium-term performance.
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References
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Amihud, Y., Dodd, P., & Weinstein, M. (1986). Conglomerate mergers, managerial motives and stockholder wealth. Journal of Banking & Finance, 10(3), 401–410. https://doi.org/10.1016/S0378-4266(86)80029-2
Andrade, G., Mitchell, M., & Stafford, E. (2001). New Evidence and Perspectives on Mergers. In Journal of Economic Perspectives (Vol. 15).
Anthony, M. (2017). Effects of merger and acquisition on financial performance in commercial in banks. International Journal of Business Management & Finance, 1(6), 93–105.
Bianconi, M., & Tan, C. M. (2019). Evaluating the instantaneous and medium-run impact of mergers and acquisitions on firm values. International Review of Economics and Finance, 59, 71–87. https://doi.org/10.1016/j.iref.2018.08.005
Chen, P., Xu, H., & Zou, X. (2017). The effects and incentive of vertical mergers: An analysis from the view of OM. European Journal of Operational Research, 263(1), 158–172. https://doi.org/10.1016/j.ejor.2017.04.020
DePamphilis, D. M. (2019). Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process Tools, Cases, and Solutions (10th ed.). Academic Press.
Feinberg, R. M. (1987). In search of industry effects of large conglomerate mergers. Economics Letters, 25(2), 173–176. https://doi.org/10.1016/0165-1765(87)90056-5
Gao, N., Peng, N., & Zhang, Y. (2021). Distributive inefficiency in horizontal mergers: Evidence from wealth transfers between merging firms and their customers. International Review of Financial Analysis, 78. https://doi.org/10.1016/j.irfa.2021.101941
Hayes, A. (2022, April 9). Enterprise Multiple (EV/EBITDA): Definition, Formula, Examples. Investopedia.Com. https://www.investopedia.com/terms/e/ev-ebitda.asp
Hossain, M. S. (2021). Merger & Acquisitions (M&As) as an important strategic vehicle in business: Thematic areas, research avenues & possible suggestions. Journal of Economics and Business, 116. https://doi.org/10.1016/j.jeconbus.2021.106004
Kenton, W. (2022, March 22). Rate of Return (RoR) Meaning, Formula, and Examples. Investing.Com. https://www.investopedia.com/terms/r/rateofreturn.asp
King, D., Dalton, D., Daily, C., & Covin, J. (2004). Meta-analyses of post-acquisition performance: Indications of unidentified moderators. Management Faculty Research and Publications, 25. https://doi.org/10.1002/smj.371
Moeller, S. B., Schlingemann, F. P., & Stulz, R. M. (2004). Firm size and the gains from acquisitions. Journal of Financial Economics, 73(2), 201–228. https://doi.org/10.1016/j.jfineco.2003.07.002
Nie, P. yan, Wang, C., & Wen, H. xing. (2021). Horizontal mergers under uniform resource constraints. Journal of Retailing and Consumer Services, 63. https://doi.org/10.1016/j.jretconser.2021.102697
Nocke, V., & White, L. (2010). Vertical merger, collusion, and disruptive buyers. International Journal of Industrial Organization, 28(4), 350–354. https://doi.org/10.1016/j.ijindorg.2010.03.002
Rahman, Z., Ali, A., & Jebran, K. (2018). The effects of mergers and acquisitions on stock price behavior in banking sector of Pakistan. Journal of Finance and Data Science, 4(1), 44–54. https://doi.org/10.1016/j.jfds.2017.11.005
Refinitiv Eikon. (2022). https://eikon.thomsonreuters.com/index.html
Renneboog, L., & Vansteenkiste, C. (2019). Failure and success in mergers and acquisitions. Journal of Corporate Finance, 58, 650–699. https://doi.org/10.1016/j.jcorpfin.2019.07.010
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education.
Rozen-Bakher, Z. (2018). Comparison of merger and acquisition (M&A) success in horizontal, vertical and conglomerate M&As: industry sector vs. services sector. Service Industries Journal, 38(7–8), 492–518. https://doi.org/10.1080/02642069.2017.1405938
Tremblay, V. J., & Tremblay, C. H. (2012). Horizontal, Vertical, and Conglomerate Mergers. In New Perspectives on Industrial Organization (127th ed., pp. 521–566). Springer.
Published
2023-05-01
How to Cite
William, R. (2023). COMPARING COMPANY PERFORMANCE BASED ON TYPES OF MERGERS AND ACQUISITIONS IN THE FINANCIAL SECTOR. Jurnal Scientia, 12(02), 1402-1409. https://doi.org/10.58471/scientia.v12i02.1387
