The impact of Mergers and Acquisitions in the long-term operating performance

In this study, I examine the impact of Mergers and Acquisitions on the long-term operating performance of US firms. Furthermore, I investigate whether some “classic” and some less examined deal characteristics can predict the post-acquisition operating performance for the combined firm. I introduce theimportance of the acquirer’s managerial ownership as a possible explanatory determinant. My research contributes to and enriches the existing literature for the following reasons. First, most of the existing studies which examine post-acquisition performance are based on market performance measurements. Studies based on changes in operating performance following takeovers in order to evaluate the impact of merger and acquisition of firms is limited. Second, the limited researches examine the post-acquisition operating performance after an M&A transaction yield contradictory results. Lastly, I investigate less examine characteristics such as the impact of M&A waves on the long-term performance and the role of managerial ownership. In an attempt to overpass some of the limitations of previous empirical studies, I employ four different measures of operating performance. Moreover, I employ two models; the change model and the intercept model, and I examine whether the conclusions are different. I demonstrate mixresults at the comparison of the performance, as the median post-acquisition performance is significantly different from median pre-acquisition performance for 3 out of 4 measures and positive in two of them. This contrast occurs when taking into account the changes in working capital, highlighting the importance of the measurement applied. However, my results become insignificant after I control for the performance of the peer companies. The analysis of deal characteristics reveals that the method of payment is significant determinants of post-acquisition operating performance. Moreover, my results regarding the cash reserves of the acquirer prior to the deal; reveal significant changes in the profitability of the combined firm. Furthermore, the relative size of the target has a significant negative correlation to post-acquisition profitability. Finally, I find that, although expected differently based on the literature on managerial incentives, the acquirer’s managerial ownership level has no significant effect on post-acquisition operating performance.