D IFFERENT V IEWPOINTS FOR I NVESTIGATING P OST - MERGER P ERFORMANCE

Though the empirical results of post-merger performance are largely negative, new M&A deals are still being made each year. The question is: since most merger results are not as good as what have been expected, why firms are still merging? Maybe the real post-merger performance is not the same as the conclusions of the previous researchers. To answer this question, several investigators have done investigation of post-merger performance from various viewpoints and tried to find out the factors which influence post-merger performance.

Agrawal, Jaffe, and Mandelker (1992) have looked into three possible factors of influencing post-merger performance, which includes adjustment of firm size and beta risk, conglomerate or non-conglomerate between combing firms, and the relative size of the acquiring events. The investigation is based on a nearly exhaustive sample of mergers over 1955 to 1987 between NYSE acquirers and NYSE/AMEX targets by using market assessment. The conclusion of their investigation states that after adjusting for the firm size effect as well as beta risk, their results still indicate that stockholders of acquiring firms experience a statistically significant wealth loss of about 10% over five years after the merger completion date. In addition, there is no significant evidence for both conglomerate and relative firm size to conclude that they are factors influencing post-merger performance.

Rau and Vermaelen (1998) examined a sample of 3169 mergers and 348 tender in the U.S between 1980 and 1991 from the view points of different book-to-market ratios.

They found that the long-term underperformance of acquiring firms in mergers is predominantly caused by the poor post-acquisition performance of low book-to-market (glamour) firms, who perform much worse than other glamour stocks and earn significant negative bias-adjusted abnormal returns of 17% in mergers. In addition, specifically, in contrast to value bidders, they concluded that glamour bidders in both 100% cash-financed and 100% equity-financed mergers significantly under-perform after the merger. They described the results by suggesting that companies with low book-to-market ratios tend to make relatively poor acquisition decisions, in general.

Cheng and Leung (2004) investigated the short-term return performance and long-term operating performance of 36 partial mergers in Hong Kong during the period 1984–1996. The main issue in the investigation is to see if there is different performance between diversifying and non-diversifying M&As. The conclusion of the research stated that both the short-term and long-term performance analyses demonstrate that the diversifying pairs of target and acquiring firms do indeed outperform the non-diversifying pairs.

Megginson, Morgan, and Nail (2004) found a significantly positive relationship between corporate focus and long-term merger performance: Focus-decreasing (FD) mergers result in significantly negative long-term performance with an average 18%

loss in stockholder wealth, 9% loss in firm value, and significant declines in operating cash flows three years after merger. Mergers that either preserve or increase focus (FPI) result in marginal improvements in long-term performance. They also concluded that every 10% reduction in focus results in a 9% loss in stockholder wealth, a 4% discount in firm value, and a more than 1% decline in operating

performance. In addition, they tested post-merger performance under different possible influencing factors and found out that cash-financed FPI mergers exhibit the best and stock-financed FD mergers the worst, long-term performance. This investigation was based on 204 corporate mergers occurring between 1977 and 1996 in the U.S.

Ragozzino (2006) examined whether the unique attributes of new ventures cause these firms to experience different M&A outcomes from established firms. The investigation was based on acquisitions of high-technology firms by the US bidders between the years 1992 and 2000. Drawing from a sample of high-technology acquisitions, the results showed that new ventures experience lower average performance in general, as well as when the target is itself a new venture. Yet, they outperform established firms when the target is a privately-held entity. The findings also demonstrated that the challenges and opportunities of firms shift through the first few years of their existence, directly affecting the outcomes of their M&A activity.

Kruse et al. (2007) examines the long-term operating performance following 69 mergers of manufacturing firms traded on the Tokyo Stock Exchange during 1969 to 1999. What worth mentioning is the evidence of improvements in operating performance for the entire samples. They investigated the post-merger performance by concluding that the pre- and post-merger performance is highly correlated; the long-term performance is significantly greater following mergers of firms operating in different industries; Increases in employment surrounding the mergers are positively related to post-merger performance among diversifying mergers and mergers completed before the peak of the equity bubble in 1989. However, they did not find existing relationships among merging firms a significantly factor for better

post-merger performance.

The previous literatures reviewed in this section discuss the possible factors which might influence post-merger performance investigated by the previous researchers.

Some of them proved their hypotheses with significant results, but some did not. The reviewed literatures are summarized in table 2.1. In the next section, the hypothesized factor to influence post-merger performance in this dissertation is to be introduced.

Table 2.1

The Summary of Different Viewpoints for Investigating Post-merger Performance from the Previous Researchers

Author Samples Factors Results

Agrawal,