Does Corporate Performance Improve After Acquisitions? A Case of Indian Companies

This thesis examines the results of merger and acquisition (M&A) activities of Indian corporates related to Outward Foreign Direct Investment (OFDI). The key issue is the extent to which these M&As create value for the shareholders of the Indian acquiring firms. There are two components to this question relating to the short and longer term impacts. First, how does the market react to the announcements of OFDI related M&As by Indian corporates in the short term? and second, how successful are the Indian companies in creating value to the shareholder in the long run? The research further considers the firm specific level using a sample of M&A companies and how media material may have contributed to the market impacts experienced by the corporates. The liberalisation investment policy initiations by the Indian government lead to rapid growth in outward foreign direct investments between 2000 and 2008. It is interesting to note that India experienced annual average growth of 1399% in OFDIs during the period 2001-2008. Encouraged by the financial reforms, an increase in large scale mergers and acquisitions (M&As) by Indian corporate occurred. The present study examines the performance of Indian corporates involved in the OFDI related M&As. The research is important because it is the first to assess the success of Indian corporates involved in outward foreign direct investments from the short term and long term perspective and across sectors. The thesis fills the gap in the literature in which it examines the aggregate performance and also looks into firm specific level performance. The study links the ownership, location and internationalisation (OLI) theory to the strategies of Indian corporates and discusses how they are aligning with international brands to stand in the international market The short-run performance is assessed using an event method utilising a three-day short-event window surrounding the acquisition announcement period. Various metrics including abnormal returns (AR), cumulative abnormal returns (CAR) and standardised cumulative abnormal returns (SCAR) are analysed. The study adopts event approach to measure the long term performance and includes: CAR, and Buy and Hold Abnormal Returns (BHAR). The study considers parametric and non-parametric tests. The other measures like Wealth Relative and Tobin’s Q are also used. The study considers a maximum 36 months following the acquisition event month. The empirical results showed positive wealth effects to stockholders in the short- and long-term periods and the empirical results supported rejection of the null hypotheses. However, specific firm-level empirical findings showed mixed results in the short term. The variations in the outcomes, such as why one M&A should receive an initial positive market reaction while another adverse market reaction, relate to the individual contexts and how the market assesses the changing return and risk parameters. The study proposed explanations for the variations in outcomes based on prior findings and OLI theory. Drawing on secondary information the study offers explanations for the share market reactions. Commentaries from financial analysts and commentators, and media releases from the company concerning a mooted M&A may impact investors’ assessments of the return and risk parameters for each company. Context is important and the specific characteristics of the Indian companies affect the outcomes. Prior studies undertaken from the context of Indian Internationalisation viewed that Indian firms have the capacity and the ability to compete in the world market. The attributes of Indian firms, which created such capacities and abilities, are embedded in the past and have emerged over a much longer period of time. The motivations for Indian firms’ overseas acquisitions include: gaining access to international markets, firm-specific intangibles, such as technology and human skills, and benefits from operational synergies, to overcome constraints from limited home market growth, and to survive in an increasingly competitive business environment. The rationale for OFDI related M&As by firms is to create value to their investments (Pradhan & Abraham 2004; Kumar 2006; Deepak 2008). The study examined five cases of Indian corporates. It identified that Indian corporates acquired competitive ownership advantages through the OFDI related M&As. For instance, through acquisitions the Indian corporates had the advantage of being local in foreign destinations and avoided the disadvantages of being foreigners in European, UK & US markets. Likewise, by undertaking integrated production networking, the Indian corporates linked the low-end players with the high-end players and were able to draw synergies and deliver value. In other words, the initial processing of raw materials was carried out in India closer to source and then the remaining processes were carried out in the acquired company’s country which allowed them to have access to the technology and also interface with the customers of the acquired companies. The study shows how the synergies occur due to disintegrated model of operations subsequent to the acquisitions. The explanations of the present study are in line with the prior findings. By adding to the prior studies and by integrating empirical research of aggregate results with explanations of the specific firm level, the thesis opens up possibilities for future research

A review of the IFRS adoption literature

This paper reviews the literature on the effects of International Financial Reporting Standards (IFRS) adoption. It aims to provide a cohesive picture of empirical archival literature on how IFRS adoption affects: financial reporting quality, capital markets, corporate decision making, stewardship and governance, debt contracting, and auditing. In addition, we also present discussion of studies that focus on specific attributes of IFRS, and also provide detailed discussion of research design choices and empirical issues researchers face when evaluating IFRS adoption effects. We broadly summarize the development of the IFRS literature as follows: The majority of early studies paint IFRS as bringing significant benefits to adopting firms and countries in terms of (i) improved transparency, (ii) lower costs of capital, (iii) improved cross-country investments, (iv) better comparability of financial reports, and (v) increased following by foreign analysts. However, these documented benefits tended to vary significantly across firms and countries. More recent studies now attribute at least some of the earlier documented benefits to factors other than adoption of new accounting standards per se, such as enforcement changes. Other recent studies examining the effects of IFRS on the inclusion of accounting numbers in formal contracts point out that IFRS has lowered the contractibility of accounting numbers. Finally, we observe substantial variation in empirical designs across papers which makes it difficult to reconcile differences in their conclusions

The corporate finance and strategy implications of country risk and investor sentiment in the South African mining industry : a case study of Impala Platinum Holdings Limited.

Thesis (MBA)-University of KwaZulu-Natal, 2006.Earnings in the South African and Zimbabwean mining industries have been severely impacted by these countries' socio-economic and political changes in the last decade. News reports and international research publications consistently rates Zimbabwe as a country with the highest political risks in the world. In South Africa (SA), the initial mining charter requiring 51% Black Economic Empowerment, was leaked to the press in 2002 before promulgation making international investors weary. The currency, the Rand (R) has strengthened from the US$ from R13.85 in 2002 to R 7.17 in 2007, significantly impacting on returns as investors to shift their portfolio to other sectors. The purpose of this research was to explore the implications of country risk and investor sentiment for Impala Platinum's valuation and provide strategy recommendations to improve its market rating whilst sustaining its competitive advantage as a platform for achieving its 2010 vision. In this study, a brief environmental scan of the mining industry was undertaken focusing on the platinum sector as well as a background review of the industry and a five year performance comparison between Impala and Anglo Platinum. It also reviewed corporate strategy literature as it relates to the research problem as well as theoretical models of investor sentiment and decision making processes. The specific research design was primarily exploratory in nature. The Implats valuation conundrum appears to be a phenomenon and the best way to achieve the main research objective was to identify any new ideas, preliminary explore some possible hypothesis and provide strategy recommendations to the board. The research adopted both quantitative and qualitative designs to focus on understanding the values, attitudes and perceptions of investors, which is interpretive and inductive in nature. A holistic case study was the specific vehicle used to conduct the research. The research population was made up of all investors in different regions of the world. Given that the study specifically related to the Implats valuation relative to Amplats, the sampling was tailored to their common investors. Data was collected using a questionnaire; the likert five scale was used to design the questionnaire. The following recommendations were made as a result of the research. Implats should implement measures to build its value chain and attempt to move to a cost quartile not easy to replicate without significant investment and time. In the short term Implats needs to continue improving on its fundamental values whilst crafting a take over defence strategy. It also needs to improve on its investor relations program to robustly communicate its political risk management strategy

Stocks for All

Public stock markets are too small. This book is an effort to rescue public stock markets in the EU and the US. There should be more companies with publicly-traded shares and more direct share ownership. Anchored in a broad historical study of the regulation of stock markets and companies in Europe and the US, the book proposes ways to create a new regulatory regime designed to help firms and facilitate people’s capitalism

Cross-border mergers and acquisitions as a channel for foreign direct investment into Nigeria : the regulatory challenges

Cross-Border Mergers and Acquisitions are a viable yet overlooked source of FDI into Nigeria. This is because FDI is mostly considered as green-field investments with little consideration for other sources of investment opportunities. To diversify Nigeria’s monolithic economy, the Federal Government introduced the Economic Diversification Policy focusing mainly on attracting Foreign Direct Investment as a tool for poverty alleviation, sustainable economic growth and development.Mini Dissertation (LLM)--University of Pretoria, 2019.ABSA bank and UP Bursary.Centre for Human RightsLLMUnrestricte

Acquirer type, agency monitoring and post-acquisition performance: an empirical investigation

The vast literature in finance examining the impact of takeovers on the share price of the bidder and target firms finds conclusive results for targets and inconclusive results for bidders. For both the UK and the US, previous studies show target firms to experience large positive abnormal returns at the time of the bid-announcement while bidder firm shareholders experience small abnormal gains as well as losses. Previous studies also show that approximately half the acquirers experience positive post-acquisition performance. There exists a serious gap in extant knowledge on what factors lead some acquirers to experience a positive post-acquisition performance while other acquirers experience a decline in their wealth. In this study we examine whether target firm managerial resistance to a takeover may be one factor which can affect the post-acquisition performance of acquirers. By segregating our sample of acquirers by the target firm management response to a takeover we are able to examine the post-acquisition performance of different acquirer types. This study attempts to fill the gaps in our knowledge regarding the relative performance of different acquirer types by addressing three research questions: i) what is the relative post-acquisition performance of different acquirer types? ii) what are the sources of long run post-acquisition value creation for each acquirer type? how effective are the agency monitoring mechanisms in determining the long run postacquisition performance for each acquirer type? In attempting to address the above questions we also examine a number of subsidiary issues that arise in the context of the relative post-acquisition performance of different acquirer types defined in terms of their financial profile. The subsidiary issues are: i) whether the acquirer firm size affects the long run post-acquisition performance? whether the acquirer's profile as a glamour or value stock, measured by the market to book value, affects the long run post-acquisition performance? whether the acquirer's profile as a glamour or value stock, measured by the price to earnings ratio, affects the long run post-acquisition performance? We use a sample of 547 acquirers, consisting of friendly, single hostile, multiple hostile and white knights, in takeovers completed between the period 1983 to 1995 to generate wealth gains. Wealth gains are measured in the form of abnormal returns and estimated by event study methodology using five different benchmark models (i.e. Fama and French Three Factor, market to book value, size, mean and market adjusted models). Then we use multiple regression analysis to test a range of hypothesis based on previous literature in finance with respect to our research questions. Our results show that single hostile acquirers outperform all other acquirer types in each of our three long run event windows. White knights tend to have a higher postacquisition performance than either multiple hostile and friendly acquirers. Friendly acquirers tend to have the worst post-acquisition performance compared to other acquirer types. We find differences in the impact of the sources of value creation and agency monitoring mechanisms on different acquirer types. Consistent with previous studies we find that shareholders of value acquirers (based on the PE ratio and market to book value) experience greater wealth gains than shareholders of glamour acquirers. We also find that shareholders of large acquirers tend to experience greater wealth gains than shareholders of smaller acquirers

A review of tax research

In this paper, we present a review of tax research. We survey four main areas of the literature: (1) the informational role of income tax expense reported for financial accounting, (2) corporate tax avoidance, (3) corporate decision-making including investment, capital structure, and organizational form, and (4) taxes and asset pricing. We summarize the research areas and questions examined to date and what we have learned or not learned from the work completed thus far. In addition, we provide our opinion as to the interesting and important issues for future research

AICPA professional standards as of June 1, 2009, Volume 2: accounting and review services, code of professional conduct, bylaws, valuation services, quality control, peer review, tax services, personal financial plannning, continuing professional education

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