The Impact of Foreign Direct Investment on Financial Performance: Results from the Mergers and Acquisitions (M&A) Experience of Canadian Firms from 1999 to 2005
International Review of Business Research Papers, Vol. 7. No. 4, July 2011
21 Pages Posted: 25 Jul 2011 Last revised: 1 Nov 2013
Date Written: July 24, 2011
Mergers & Acquisition is an important strategy for higher market share, rapid market penetration and economies of scale. Trans-border M&A is an important part of the annual FDI (Foreign Direct Investment) flow. In recent years, Canada has witnessed an impressive number of mergers and acquisitions. The popular belief in connection with the subject of mergers and acquisitions is relatively mixed. However, when the acquirer is non-Canadian company especially from the countries other than the USA, Canadians express negative view on the M & A deals. In this study, we analyze the financial performance of pre- and post-acquisition of 95 mergers and acquisitions that took place in Canada between 1999 and 2005. These mergers and acquisitions have all been made by companies that are not Canadians. The results show that the post-acquisition financial performance is substantially the same as the one obtained pre-acquisition. We use the average earnings per share as a tool for calculating financial performance. In addition to measuring the change in earnings per share through pre- and post-acquisition, we conduct segmentation by industry, size of investment, business experience and nationality of the buyer to understand whether these factors can explain the success or failure of a merger or acquisition transaction. In light of the results, only the industry and business experience affect, to a certain level, the chances of successful mergers and acquisitions.
Keywords: Strategic Management, Finance, M&A
JEL Classification: F21
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