Does the Post-Acquisition Performance of Bidding Firms Depend on the Organizational Form of Targets Acquired?

30 Pages Posted: 31 Jan 2013

See all articles by Syed Shams

Syed Shams

University of Southern Queensland

Abey Gunasekarage

Monash University; Monash University

Sisira R. N. Colombage

Monash Business School

Date Written: January 10, 2013

Abstract

A number of theoretical arguments such as corporate monitoring hypothesis, liquidity hypothesis and managerial motive hypothesis propose that the acquisitions of private targets are more value creating than the acquisitions of public targets. Using two large samples of acquirers of public targets and acquirers of private targets, we examine the post-acquisition operating performance of Australian bidders. The excess returns earned by these two samples during the announcement period reveal that the market perceives the acquisitions of private targets as value creating decisions while having a neutral view on the acquisitions of public targets. These findings corroborate existing evidence in the area while providing support for the relevant theories. An analysis of acquisition year financial profiles reveals that the acquirers of public targets are much larger in size, highly profitable and cash rich than the acquirers of private targets. Compared with acquisition-year performance, acquirers of public targets were able to maintain their performance in the post-acquisition years while the acquirers of private targets were able to show a significant improvement. However, when the industry-adjusted abnormal performance was analyzed, it was found that the former group outperformed their industry peers as well as the latter group by a significant margin. A number of bid and firm characteristics were found to have differential influences on the performance of two types of acquirers. Our sensitivity analyses revealed that the influences of bid and firm characteristics are somewhat sensitive to the benchmark used to generate abnormal performance and the scaling factor used to calculate performance measures.

Keywords: mergers and acquisitions, acquirers of public targets, acquirers of private targets, excess return, operating performance, Industry-adjusted performance, profitability, cash flow return

JEL Classification: G34, G12, G14

Suggested Citation

Shams, Syed and Gunasekarage, Abeyratna and Colombage, Sisira R. N., Does the Post-Acquisition Performance of Bidding Firms Depend on the Organizational Form of Targets Acquired? (January 10, 2013). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2208950 or http://dx.doi.org/10.2139/ssrn.2208950

Syed Shams

University of Southern Queensland ( email )

Sprinfield
Springfield
Springfield, Queensland 4300
Australia
+61734704551 (Phone)

Abeyratna Gunasekarage (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Sisira R. N. Colombage

Monash Business School ( email )

Wellington Road
Clayton, Victoria 3168
Australia

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