Do M&As Create Value? The Pre- and Post-M&A Performance of Chinese and Indian Companies

Abstract

The growth in Chinese and Indian economies has witnessed an increase in the mergers and acquisitions (M&A) activities over the last twenty years. The effects of M&As on Chinese and Indian listed companies’ are analysed using average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) as performance measures. We use a mean adjusted returns model, a market adjusted returns model and ordinary least squares (OLS) adjusted returns model to calculate both AAR and CAAR for the listed companies. We compare the performance of the bidder before the acquisition with performance of the merged company and results for Chinese and Indian markets are also compared to the results obtained for the more mature and developed US market. The sample for our study includes 30 companies from China, 40 from India, and 32 from the US for the period 2004 to 2007. Our findings are consistent for all three countries, that is, there is no improvement in company value after M&A.

Keywords: Mergers and acquisitions, Average abnormal returns, Cumulative abnormal returns, Market adjusted returns

JEL Classification: G14, G34