The Long-Term Operating Performance of European Mergers and Acquisitions

ECGI - Finance Working Paper No. 137/2006

TILEC Discussion Paper No. 2006-030

44 Pages Posted: 14 Nov 2006

See all articles by Marina Martynova

Marina Martynova

U.S. Securities and Exchange Commission

Sjoerd Oosting

Tilburg University

Luc Renneboog

Tilburg University - Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC)

Date Written: November 2006


We investigate the long-term profitability of corporate takeovers of which both the acquiring and target companies are from Continental Europe or the UK. We employ four different measures of operating performance that allow us to overcome a number of measurement limitations of the previous literature, which yielded inconsistent conclusions. Both acquiring and target companies significantly outperform the median peers in their industry prior to the takeovers, but the raw profitability of the combined firm decreases significantly following the takeover. However, this decrease becomes insignificant after we control for the performance of the peer companies which are chosen in order to control for industry, size and pre-event performance. None of the takeover characteristics (such as means of payment, geographical scope, and industry-relatedness) explain the post-acquisition operating performance. Still, we find an economically significant difference in the long-term performance of hostile versus friendly takeovers, and of tender offers versus negotiated deals: the performance deteriorates following hostile bids and tender offers. The acquirer's leverage prior takeover seems to have no impact on the post-merger performance of the combined firm, whereas the acquirer's cash holdings are negatively related to performance. This suggests that companies with excessive cash holdings suffer from free cash flow problems and are more likely to make poor acquisitions. Acquisitions of relatively large targets result in better profitability of the combined firm subsequent to the takeover, whereas acquisitions of a small target lead to a profitability decline.

Keywords: takeovers, mergers and acquisitions, long-term operating performance, diversification, hostile takeovers, means of payment, cross-border acquisitions, private target

JEL Classification: G34

Suggested Citation

Martynova, Marina and Oosting, Sjoerd and Renneboog, Luc, The Long-Term Operating Performance of European Mergers and Acquisitions (November 2006). ECGI - Finance Working Paper No. 137/2006, TILEC Discussion Paper No. 2006-030, Available at SSRN: or

Marina Martynova

U.S. Securities and Exchange Commission ( email )

100 F St. NE
Washington, DC 20549
United States

Sjoerd Oosting

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE

Luc Renneboog (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Warandelaan 2
5000 LE Tilburg
+13 31 466 8210 (Phone)
+13 31 466 2875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

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