Methodologies Used to Determine Mergers and Acquisitions’ Performance
Academy of Accounting and Financial Studies Journal, Vol 16, No. 3
Posted: 8 Apr 2011 Last revised: 2 Dec 2016
Date Written: 2012
Over the years, several studies have been done by researchers and practitioners to understand the significance of adopting Mergers & Acquisitions (M&A) strategy by organizations. The motivation has been to understand whether the perceived benefits from this strategy have accrued or not. They have studied whether these acquisitions are value enhancing or destructive strategies for acquiring organizations.
We investigate this question from the perspective of methods used to determine post acquisition value. We research M&A literature over the last three decades to describe different methods used to measure acquisition performance; identify the most popular methods; their limitations and benefits; and analyze whether research conclusions differ depending upon the method used to measure performance. We also research whether methods used in emerging markets such as India differ from those typically used in the developed markets.
We find that internationally event studies dominate acquisition performance research; while research on Indian acquisitions has primarily been based on accounting returns. There are a few other methods such as data envelopment analysis and balanced score card methods which warrant further research and inclusion in M&A literature. We also find that research conclusions differ depending on the method selected for performance evaluation; which is an important factor for researchers and practitioners to consider while drawing conclusions on acquisition success or failure.
We recommend that the method of evaluation should be based on the country of study, and more significantly the aspect under examination i.e. profitability, stock market perception or efficiency. Our contribution to the present body of knowledge is to suggest that methods of evaluation used in developed markets may not work in emerging markets and that method selection can influence research conclusions.
Keywords: Mergers and Acquisitions, Performance, Value, Method
JEL Classification: G34, L25
Suggested Citation: Suggested Citation