Merger And Acquisitions Studies Conducted In India

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02 Nov 2017

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Mork, Shleifer, and Vishny (1990) found that the market punish share holders in companies that engaged in unrelated acquisition whereas shareholders in companies that made related acquisitions did significantly better.

Mahmmod and Mahammad (2007) studies 8 bank mergers on Feb’2000 in Malaysia which were Government driven with -3 to +2 merger year data. They find that post merger operating performance of anchor Banks on average did improve compared to the pre-merger operating performance. It suggests that even though the mergers are forced in nature or Government driven, they are able to contribute to the synergistic benefits. They also find that pre- merger operating performance does not continue into the post merger period. The Banks pre-merger and post- merger periods in Malaysia are independent.

Elif (2008) studied cross border merger of 30 Turkish companies during 2003- 2006 and concluded that corporate acquisition in by foreign companies do not lead to improved performance for the Turkish sample firms. The three accounting Ratios like ROA, ROI and ROS showed insignificant decline in the post merger period. In order to isolate the economic or market fluctuations they adjusted for the industry trend using Healy et al., 1992 methods. For each target firm in the sample, a peer company was determined and the firm with median EBIT/ Total assets ratio at the end of the year prior to the acquisition was selected as industry median peer. The sample company involved in Merger and acquisition was not included for the industry median for getting a proper control sample which was different from the experimental sample. Using change model, the three ratios over the year before and after the merger were determined the mean were compared by parametric t test. Further the effect of acquisition on post acquisition performance was investigated through cross sectional regression of the post acquisition performance on the pre-acquisition performance for each three ratios. The t test revealed that the difference between the pre acquisition and post acquisition ratios is not statistically significant and they concluded that there is no significant difference between pre and post acquisition performance of Turkish companies which were target of foreign acquisitions. In the intercept model the regression results showed that constants were not significantly different from zero and hence the conclusions drawn were, there is no significant difference between the pre and post acquisition performance.

Soongswang (2008) studied 151 take over in Thailand between 1992- 2002 over a period of 12 months before and after take over. He measured Abnormal returns (ARs) and using event study approach, applying two models and three parametric test statistics found out that Thai successful take over effects are creating wealth for the bidding firm’s shareholders. He also finds out that market responds positively to take over news leading to ARs approximately 4.25 and 3.03% per month prior to four and three months prior to the announcement months respectively for the bidders.

Kawahara and Takeda (2007) studied 162 mergers in Japan among the listed companies during 2001-2003 in order to measure the effect of Mergers and Acquisitions on the corporate performance of acquiring companies. They employed abnormal operating performance following Barbar and Lyon (1996) and by using Wilcoxon singled rank test and found that the overall effects of merger and acquisition on corporate performance are statistically significant, compared to the corporate performance of other companies with in the same industry with similar pre-acquisition performance. The regression analysis to find factors affecting post- acquisition abnormal performance shows that complete acquisition, similar size and restructuring efforts may improve post acquisition performance of the acquiring companies.

Many more Japanese accounting studies on mergers and acquisitions based on the corporate performances of acquiring companies have been made. Okumura (2001) studied Net Profit and Current ratio of Japanese merging companies between 1989- 1993 and concluded negative results for cross border acquisitions. Komoto (2002) studied ROA and Operating profit over Total assets ratios for merging firms during the period 1981- 1995 and finds out no significant changes in post merger period. Further, Okabe and Seki (2006) studies ROA, Interest Coverage Ratio and ROE of the acquiring firms during 2001- 2004 and concluded that there is significant improvement in post merger performance of the merging firms. Iwaki (2006) finds significant improvement in post merger period of the same group mergers after studying ROA, Net profit over Sales, Labor productivity and Expense to Sales for the merging firms during 1980- 2004.

Hence the Japanese studies of post merger performance of merging firms are also inconclusive like the studies in other parts of the world.

Merger and Acquisitions Studies conducted in India:

The issue of operating gains from mergers has not been tested much in India though there has been sharp increase in merger and Acquisitions in India in the post 1991 period. Different Acts and Legislations like MRTPA’1969, NIPS’ 1991 etc. have forced Indian industries into sever competition; both internally as well as externally. In the pre 1991 era, there was tight regulatory environment through MRTA and FERA and stiff entry and exit barrier under Industrial License Act. Hence much emphasis was not given upon mergers and acquisitions due to various barriers of the Government. However the NIPS 1991 has brought changes in rule of MRTPA 1969 regarding growth of an existing concern, establishment of new concerns and merger takeovers and conglomerations of different concerns. Hence merger and acquisitions has become easier.

Further to this there has been significant increase in income level of the people. The consumption pattern has gone drastic change. The vast middle class people were having extra surplus income. Exposure to outer world and competition in every field accelerated such demand and attitude. All this enhanced the consumption level and preference to quality products. Hence industries were to find ways out to satisfy such demands and overcome the limitations to their production. Hence there were tilt in attitude to either go for green filed expansion or go to mergers and acquisitions. Mergers and acquisitions were considered as an easy and quickest method of corporate restructuring and expansion. Hence post 1991 period has seen enhanced mergers and acquisitions.

There have been increase in merger and acquisitions in India in post 1991 period, but fewer studies has been conducted on the same. The availability of literature on study of mergers and acquisitions in India is scanty. Some major studies on the same during pre and post 19991 are given in brief here.

The first ever attempt to analyze the effect of mergers in India was carried out by V S Kaveri. Kaveri (1986) compares post merger and pre merger performance of nine merger cases ( seven within the group and two not belonging to same business group) between 1975- 86 and finds out varied results. Kaveri attempted to measure the effectiveness of merger by comparing actual performance vis-à-vis expectations from the mergers. Some merger cases resulted in positive gains on the post merger period and in some other cases the post merger result has been disastrous. Kaveri finds that sick companies raised sales in post merger period. Though healthy companies remained to be healthy in post merger period, their degree of improvement in health varied from case to case basis. The actual performance of sick companies was not nearer to the projected performance. In the post merger period the sick companies expanded, diversified and modernized their business activities. Bigger the size of the merger, the greater was the contribution of the sick company to the total sales of healthy company in the post merger period. The share prices fluctuated greatly during the process of the merger till the merger was completed. The better performance of the merging and merged firms in the post merger period was noticed through reduced bank borrowings in the post merger period.

Rao and Rao (1987) studied 94 mergers during the period 1970- 86 under the auspices of MRTP Act, 1969. They observed that companies prefer horizontal and conglomerate mergers rather than vertical mergers. Out of 94 mergers studied 38 were of horizontal mergers and 34 were of conglomerate mergers. In 61 merger cases both the acquirer and acquired companies belonged to the same business group. They also highlighted the importance of efficiency gains and reduction in expenditure as important motives of merger. Kumar and Parchure (1990) studies mergers and acquisitions and discuss their accounting framework.

Yadav, Jain et al. (1999) carried out an assessment of financial profitability of merger synergy of the pre-merged companies with the post merger combined company. They compared the sum of premerger values of attributes like cost ratios, earning ratios, profit ratios, ROI, Asset ratio etc. of pre-merged companies with post merger value of combined companies. Their study was concentrate on four Indian companies (two merged with Indian Companies and two with multinationals), they analyzed and compared their performance over a period of three years before and three years after the merger and tested that hypothesis to see if the merger with multinationals were more successful than with Indian companies. They used ratio analysis and trend analysis in their investigation and found out that, a) growth has been achieved by all companies whether Indian or multinational, but growth was more when merged with multinationals, b) post merger EPS in multinational was more than their Indian counterpart, c) Percent increase in dividends was more in case of foreign multinationals, while Indian companies maintained a constant dividend, d) on expenses there was not any clear trend with uneven trend. All their studies concluded that merger with multinationals were more successful than merger with Indian companies.

Singh and Kumar (1994) analyzed the role of BIFR in revival of sick industries in India through the process of merger and acquisition. They studied the case study method and found out that role of BIFR in rehabilitation of sick companies by merging it with healthy companies in laudable. All the three cases studies by them was found to be successful and by has fulfilled the objective of revival of sick industries by merger. They also found out that tax implication was the most distinguished and singularly the most inviting feature for the healthy companies to merge with sick industries. However their study concluded position implication on financial health of merging firms on the post merger periods.

Mandal (1995) studied different types of economic categories of mergers like horizontal, vertical and conglomerate mergers and reviewed the gains out of this. He studied and quantified the tax benefits to the acquiring companies and the role of such benefits towards the revival of sick company (merged). He examined 19 mergers and investigated into the motives of merger, means of payment, success and failure of mergers and tax benefits. He found out that equity based merger is an important management strategy for growth without embarking on cash reserve. Reserves and surplus of merged company increased as a result of merger and in most cases the leverage ratio also increased. Conglomeration merger helps to reduce the business risk. Revival of financial health of sick target company is possible through merger into a financially better company, which supports the effectiveness of tax incentive schemes of Income Tax Act and justifies the approach of BIFR to merge a sick unit with a profitable one. He found out that in three merger cases losing targets became contributory to the overall profits in post merger period and in two cases the performance was satisfactory and in one case it took around nine years to revamp financial performance of losing targets.

Ravisankar and Rao (1998) analyses the implications of takeovers from the financial point of view with the help of financial parameters like liquidity, leverage profitability etc and empirically examined the success or failure of take over as a strategy of turning around of a sick unit. After examining a sample of eight merger cases sanctioned by BIFR, he observed that if a sick company is taken over by a good management for turn around and makes serious attempts, it is possible to turn it around successfully and better liquidity, better solvency and improved profitability can be achieved after take over. When a company is taken over by an acquiring company, it expanded and modernized its business activity through turn around. He also observed that companies which had been turned around after take over were those which were taken over by companies with reputed management groups.

Roy (1999) studied CMIE data pertaining to 116 mergers and 170 acquisitions during the period 1995 to 1997 through case study method with reference to causes of merger and nature of the mergers. She found out that most of the mergers are horizontal in nature and acquiring firms are more efficient in profitability than the targeted firms.

Kumar (2000) analyzed 256 samples from the period 1993- 2000 pertaining to merger and acquisitions of Multinational Enterprises in India and attempted to find the motivating factors of such mergers by MNE and the industrial composition of such mergers.

Beena (2000) analyses the trends of merger in India over the period 1974– 1995 and deeply analyses the merger with a sample of 45 corporate manufacturing sector mergers in post 1991 (1990-94) liberalized regime. He emphasized on characteristics and causes merger and the impact of merger on financial performance of the acquiring companies in the post merger period. She finds the significance of mergers and their characteristics and establishes that acceleration of the merger movement in the early 1990s was accompanied by the dominance of mergers between firms belonging to the same business group or houses with similar product line. With removal of restrictions and barriers in post 1991 era, firms instead of green field growth preferred inorganic growth and wanted to take over firms in readymade manufacturing sector with established brands, good market share, better network facility and market share. In the post liberalized era merger was preferred in manufacturing sector than non manufacturing sector. The merger was aimed at increase in size, deriving marketing size, scales of economy and better financial benefit due to tax incentives etc. She did not find and significant difference in profit margin and rate of return between the period before and after merger and concluded that merger does not necessarily brings improved financial performance in the post premerger period.

Saple (2000) studied 36 firms involved in mergers in 1992-1995 regarding the characteristics of acquiring and targeted firms. He made pre-merger and post-merger operating performance analysis of the acquiring firms and attempted to find out the sources of merger induced changes. In a sample of 36 sample study, Saple finds 14 cases of horizontal mergers. He noticed that the targeted firms were better than industry average while acquiring average profitability. The acquiring firms were high growth firms which had improved their performance over the years prior to merger and had higher liquidity. The target firms were with higher than industry profitability which deteriorated over the period just before merger.

Das (2000) analyzed the mergers in manufacturing sector during 1994-1998 and studied the nature, structure, significance and composition of merger in post 1991 period. He finds a) 65 percent mergers were of horizontal mergers, b) 78 percent mergers and 73 percent takeovers in India were in private manufacturing sectors during the period of study (1994-98). He also finds out that acquiring firms had higher premerger profitability than target firms. In 86 percent of cases the acquiring firms had higher premerger sales than the target firms revealing that acquiring firms were larger in size than corresponding target firms. Further in 68 percentages of cases the gearing ratio was higher for target companies as compared to acquiring companies which implied that target firms had larger debt liability before merger than the corresponding acquirers. So Das concluded that the acquirer companies are with higher growth rate, high liquidity than corresponding target firms and target companies have in general larger debt liability before merger than the acquirers.

Basant (2000) finds 60% mergers from a sample of 397 mergers were of horizontal mergers during the period 1991-97. Thus it is seen that horizontal mergers are main mergers in India. The studies indicate that firms try to consolidate in a few chosen areas only. He concluded that the economic liberalization of 1991 and the opening if Indian economy has changed the nature of oligopolistic rivalry in Indian industrial horizon. The exogenous factors have contributed towards restructuring of corporate world mainly in the form of mergers and acquisitions.

Pawaskar (2001) studied a sample size of 36 merged firms from 1992-95 using financial ratios of profitability, growth, leverage, liquidity and tax provisions and calculated operating cash flow returns on assets with matched control for three pre-merger and three post merger years. She studied the post merger operating performance of the acquiring firms and tried to find out the merger induced changes in the acquiring firms. The study found that acquiring firms performed better than industry in terms of profitability, and that the mergers led to financial synergies and a one-time growth of the acquiring firm’s asset base. She concluded that post merger corporate profitability does not increase. The only significant gains for the acquiring firms were through increased leverage. Her conclusion was that merger did not lead to improved performance. The study also inferred that the type of merger, whether BIFR revival or those between group companies/subsidiaries did not affect the post-merger performance.

Kaur (2002) examines the Merger and Acquisition activity in India during the post liberalization period and tested the usefulness of select financial ratios to predict corporate takeovers in India. The study compared the pre and post-takeover performance for a sample of 20 acquiring companies during 1997-2000, using a set of eight financial ratios, during a 3-year period before and after merger, using t-test. The study found that gross profit margin (EBIT/sales), return on capital employed (ROCE) and asset turnover ratio declined significantly in the post- takeover period, suggesting that both the profitability and efficiency of merging companies declined in the post-takeover period. However, the change in the post-takeover performance was statistically not significant.

Sorensen (2000) studied some acquirer firms, target firms and non-merging firms and finds that financial ratios are much less useful for predicting companies that merge. He reports that acquiring firms are more profitable than target and non-merging firms. His view supports that present day mergers are motivated by companies with above average margins seeking profit improvement by rapid expansion of sales.

Das (2000) and Saple (2000) finds post merger profitability to be declining in many of the acquiring industries, where as Beena (2000) finds no significance difference in rate of return and profit margin between pre and post merger period.

Pandey (2001) has examined the issue of takeover announcements, open offer, and its impact on share-holder value in the Indian corporate sector using event study methodology. He assessed the impact of open offer announcement on target firm’s stock returns and on analyzing daily stock return of 14 target firms he found out that the announcement impact of the open offer was positive, but it eroded substantially in the post announcement period.

Swaminathan (2002) studied a sample of five mergers during 1995-96, and found that four of the five acquiring firms improved operating and financial synergies three years after the merger. While the net profit margin significantly improved post-merger, the asset turnover did not show any significant change. The study concluded that shareholder value improved for mergers of smaller companies but not for mergers of large companies

Machiraju (2003) suggests that Mergers &Acquisitions tends to benefit society because it results in an increase in share holders’ value of both target and acquiring companies without increasing concentration. The increase is related to improve operating efficiencies of the combined firms.

Beena (2004) analyzed the pre and post-merger performance of a sample of 115 acquiring firms in the manufacturing sector in India, between1995-2000. The study used some financial ratios5 to test for the difference of means between the pre- and post-merger phase, using the t-statistic and could not find any evidence of improvement in the chosen financial ratios of the acquiring firms in the sample during the post-merger period compared to the pre-merger period. However, the profitability ratios were seen to be relatively better when compared to the overall manufacturing average, and foreign-owned acquiring firms seemed to perform relatively better, compared to Indian-owned acquiring firms.

Kumar and Rajib (2004) find out that out of 851 mergers in India, 386 represent multiple mergers wherein the acquiring firms has acquired more than one target firm. Further 45% of the total acquirers firms are involved in multiple mergers.

Dash (2004) studied economic impact of mergers from samples of related and unrelated mergers during the period 1994-97 based on data for three years prior to merger and five years after the merger. He used event study methodology to find extend of value creation by mergers and found out that on an average mergers lead to value destruction and not creation over a long period of time irrespective of the pattern of merger. In case of unrelated mergers the destruction of value was relatively higher than related mergers. His finding was not in line with the general belief that mergers means corporate salvation.

Vanitha and Selvam (2007) studied merger of 17 manufacturing companies during 2000- 2002 in India and evaluated financial performance using ratio analysis, mean and standard deviation and‘t’ test value. They found out that merging companies were taken over by companies with reputed and good management in India. They concluded that overall merged manufacturing companies achieved better liquidity, solvency and improved profitability after merger. Further the merged manufacturing companies expanded their business activities after merger.

Mantravadi and Reddy (2007) studied the impact of mergers on the operating performance of acquiring corporate by examining some pre- and post-merger financial ratios with a sample of 68 firms chosen from all mergers involving public limited and traded companies in India between 1991 and 2003. The results suggest that there are minor variations in terms of the impact on operating performance following mergers, when the acquiring and acquired firms are of different relative sizes, as measured by market value of equity. The analysis of pre- and post-merger operating performance ratios for the acquiring firms in the sample seems to indicate that relative size does make some difference to the post-merger operating performance of acquiring firms. For cases where the relative size was between 0.11 and 0.70, there has been a decline in net profit margin and return on capital employed, along with an increase in financial leverage after mergers. For cases where the relative size was between 0.71 and 1.00, there was no difference in the pre-merger and post-merger operating performance ratios. For cases where the relative size of the target firm was more than that of the acquiring firm, there has been a significant decline in returns on net worth and capital employed, and a marginal increase in financial leverage. The results from the analysis of pre- and post-merger operating performance ratios for the acquiring firms in the sample showed that there was a differential impact of mergers, for different industry sectors in India. Type of industry does seem to make a difference to the post-merger operating performance of acquiring firms

Kumar and Rajib (2007) identify the characteristics of merging firms in India based on study of 227 acquirer and 215 targets firms during 1993-2004. Ramakrishnan (2008) on a sample of 87 domestic mergers during 1996- 2002 found that efficiency appears to have improved post-merger lending synergistic benefits to the merged entities. The paired t-test for comparison of means provides a test statistics of 1.873 that is found significant at the 10 per cent confidence level which indicates that the positive mean difference of 0.028 between AIACF(POST) AND AIACF (PRE) is not due to chance but because merger has led to significant improvement in firms operating performance in post merger period. Synergistic benefits appear to have accrued due to the transformation of the hitherto uncompetitive, fragmented nature of Indian firms before merger, into consolidated and operationally more viable business units. The improved operating cash flow return is on account of improvement in the post- merger operating margin of the firms, though not of the efficient utilization of the assets to generate higher sales. In the long run, mergers appear to have been financially beneficial for firms in the Indian Industry. It also renews confidence in the Indian Managerial fraternity to adopt Merger and Acquisition as fruitful instrument of corporate strategy for growth.

Singh and Mogla (2008) studied 56 samples of companies merged between 1994-2002 and found that profitability declined significantly after the mergers. Even after five years of mergers, the firms could not improve their performance. Since performance of matching firms decreased significantly over the same period, the decline in profitability of merged firms cannot be attributed to merger alone. The benefits of merger were visible only in the form of increased size and improved interest coverage ratio. Regression analysis showed that current ratio, debt equity ratio and size are negatively related to profitability, where as interest coverage ratio, and age affect the profitability positively. The performance of group firms is better than non- group firms.

Mantravadi and Reddy (2008) studied post merger performance of acquiring firms from different industries in India and analyzed 118 firms merged between 1991 and 2003. The results suggest that there are minor variations in terms of impact on operating performance following mergers, in different industries in India. In particular, mergers seem to have had a slightly positive impact on profitability of firms in the banking and finance industry, the pharmaceuticals, textiles and electrical equipment sectors saw a marginal negative impact on operating performance (in terms of profitability and returns on investment). For the Chemicals and Agri-products sectors, mergers had caused a significant decline, both in terms of profitability margins and returns on investment and assets. Type of industry does seem to make a difference to the post-merger operating performance of acquiring firms

Research on Mergers and Acquisitions has been done extensively in other countries. In India very limited research has been done and particularly in the post liberalizations period and more particularly in terms of the effect of Mergers and Acquisitions on share holders’ value. The survey of literature reveals that mostly research has been done on event studies which emphasizes on studies just prior to and immediately following the M & A. Researchers have preferred to conduct the research with data from a short span of period and reach at a conclusion which has been one of the easiest method. Short term study done in event analysis method, may not give a proper picture and accurate evaluation regarding success or failure of the M & A merely based on results obtained in the weeks or months immediately after merger. The real impact of Merger would not normally come until two to three years after merger. Hence accounting study should also be made, since in accounting studies the data is collected over a longer period and the economic impact is studied long after the deal. However in India very little research on accounting methods has been done. The accounting-based approach also has demerits. Firms may use creative accounting techniques which may imply that their published accounts may not accurately reflect the companies' financial position (Dickerson et al., 1997).

Studies based on accounting methods have attempted to assess the economic impact of Mergers & Acquisitions by testing for changes in the profitability of the firms concerned in merger. In this study, pre- Mergers profitability measures would be compared to post-Mergers profitability measures by parametric tests to find out the impact of the mergers. This type of research gives a proper evaluation long after the merger. Further event study based on share price movement will also give a proper glance at the situation immediately after mergers and hence in this study both accounting and event studies would be conducted.

Empirical testing of operating performance following mergers of Indian companies has been quite limited so far, and focused specifically on the manufacturing sector, using small samples or individual cases, and over limited periods of time.

Methods used for conducting merger studies:

The impacts of Mergers and Acquisitions on the performances of merged companies have been done in two ways by all the researchers in the field. One is "Accounting studies/measure" which is based on financial data such as financial ratios and cash flow returns etc. The second is "Event Studies" or "Share price returns measures" which studies the price of shares in the stock market. Event studies measure security price changes in response to events. A single event study typically analyzes the average security price reaction to instances of the same type of event experienced by many firms. For example, the event could be the announcement of a merger. The event date can vary from one security to another in the same study, with dates measured in "event time". Some studies use pre-tax cash flows while some others use net income as measure of company profitability. To adjust for size, these measures are divided by assets, sales, equity etc. An adjustment for the industry trend is also made.

Previous studies yielded inconsistent results about changes in operating performance following Mergers & Acquisitions. There is no consensual view on effects on financial performance following the Merger and Acquisition.

Post acquisition performance of firms have been examined in terms accounting based performance by Ramaswamy & Waegelein (2003), Dickerson et al (1997), Ravenscraft and Scherer (1989) and market based performance by Mitchell and Stafford (2000), Kwansa (1994), Gregory, (1997), Rau & Vermaelen (1998), Raad et al (1999), Canina (2001).

Some studies report gains (Cornett and Tehranian, 1992; Healy et al., 1992; Ramaswamy and Salatka, 1996; Powell and Stark 2005; and Parrino & Harris, 1999) where as some report losses (Hogarty, 1978; Neely and Rochester, 1987; Pawaskar, 2001 and Yeh and Hoshino, 2001). Some others show mixed or insignificant results (Herman and Lowenstein, 1988; Lev and Mandelker, 1972; Mueller, 1980; Ravencraft and Scherer, 1989; Ghosh, 2001; Neely & Rochester, 1987; and Sharma and Ho, 2002).

Table: 2: Summary of studies on performance of Mergers & Acquisitions:

Studies Report Gains

Studies Report Losses:

Studies Report Mixed/ Insignificant Results:

Cornett and Tehranian, 1992

Healy et al., 1992

Ramaswamy and Salatka, 1996

Powell and Stark 2005

Parrino & Harris, 1999

Manson, Stark and Thomas, 1994

Hogarty, 1978

Neely and Rochester, 1987

Pawaskar, 2001

Yeh and Hoshino, 2001

Philippatos, Choi and Dowling, 1985

Herman and Lowenstein, 1988

Lev and Mandelker, 1972

Mueller, 1980

Ravencraft and Scherer, 1987

Ghosh, 2001

Neely & Rochester, 1987

Sharma and Ho, 2002

In India work on post merger performance evaluation has not been done extensively. Only little work has been done which is enumerated above. Further no work in metal, metallic products sector has been conducted. The present research proposal is on a sector where no previous work has been done and also the sector has been selected due to its growing importance both nationally as well as globally. In the days to come, this sector may take an important position in the economy. The literature as above provides a bird’s eye view of the\ evaluations done by workers in different countries at different times. Attempt is being made here to study the effect of merger on manufacturing industries belonging to a sector that have economic importance. It seems no earlier study has been done on sector performance.

While reviewing the literature, limitations of the present approaches and the potential areas of further research are also reported in this chapter.

GAP IDENTIFIED IN LITERATURE

While reviewing the literature on mergers and acquisitions study made in and around many countries, development of preliminary lists of research gaps were found out based on the assessment of the existing research. Many researchers have tried to investigate post acquisition perfrormance. The results and evidence has been conflicting. Many have found out that the shareholders of the acquired or target firms have gained financially, but return to the share holders of acquiring firms has been doubtful. Though main purpose of M & A is financial benefit for both the merged and acquirer firms, but Connor and Geithman (1988) have reported that acquiring firms commonly gain neutral to negative market reaction after merger activity. Similarly Early (2004) reported that in general the shareholders of acquiring firms financially benefit from M & A announcements in less than half of the occasions.

Emerging findings from the gap analysis:

While reviewing the literatures on mergers and acquisitions studies undertaken globally, some gap in the literature and the research work there on was found out. Analysis was made on the gap found out in the literature and the same are described in nutshell.

2.2.1.2 General overview: The literature review identified that a number of the research studies have not been conclusive. It has failed to identify specifically whether merger and acquisition has brought financial gain and operational efficiency to the merging firms or have brought loss and inconvenience to the merging firms. This aspect cannot be answered on the basis of existing literature. These questions may need to be explored further in new studies. Perhaps unsurprisingly, the gap analysis reveals a disproportionate amount of literature on share holders gain or loss and no conclusive finding on the firm’s efficiency in financial parameters.

2.2.1.3 Sectoral Representation and participation Gaps in the research: There is a substantial amount of statistical data detailing with the general aspects of merger and acquisition and it covers wide range of industries. There is little specific industry orientation to the study. Though some researchers have emphasized on industry specific study, but most researchers have gone for general studies and it may not give any hint for a specific industry orientation.

There was little information for specific industry study. Secondly study on metal or metallic industry is negligible. The metallic sector which occupies a prime space in the modern economy worldwide has been neglected to a vast extend in the studies. Information on the importance attached to perceived differences in sectoral aspects is limited.

2.2.1.4 Geographical studies Gap: In the literature review it is found that very little studies have been undertaken in India though it is inhibited by second largest population in the world. Further it is an emerging economy and more and more studies on merger and acquisitions are required to be undertaken in India. Further no studies in metal and metallic industries have been undertaken in India. Hence there is an urgent requirement to take study/projects in merger and acquisition in metal and metallic sectors in India.

The literature review identified a number of questions cannot be answered on the basis of existing literature. These include

Do the merger and acquisitions meet the expectations of the merging and acquirer firms?

Do the merger and acquisition brings financial benefits to the merged firm?

What about the impact of merger and acquisitions in financial aspects in metals and metallic sector?

What about merger and acquisitions impacts in financial aspects of metallic sector in India?

Whether merger and acquisition in metallic sectors in India is advisable or not?

2.2.1.5 Reasons for the Gaps: The gap is due to the following aspects;

Non undertaking of more studies in specific sectors

Metallic sectors have not been considered as important one like financial sector, pharmaceuticals, textiles etc.

In India not much studies have been taken place in M & A

Further in India no studies have taken place in metallic sector till date.

Most of the studies have given non-conclusive finding regarding positive or negative impacts of M & A on financial aspects.

Combining financial aspects of the firms and of the investors/ share holders are also needed to be taken up.

Hence the Gap in the literature has been noticed which needs to be found out and filled up in the present study. An intense involvement in typical proactive study in the metals and metallic sector in India needs to be undertaken to find out its impact in a very important sector which is directly related to GDP of the nation. With spurt in M & A activity in the recent past, there is scanty information on post acquisition performance in metal and metallic industries and hence there is an urgent need to study the post acquisition performance in the industry with the available data and information.



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