The “inconclusive” existing literature on long-term horizon studies of
mergers is the motivation of this paper to reexamine the post-merger
performance and explore the reasons of unsatisfactory performance. We test
efficiency theory of mergers by examining the industry adjusted operating
performance of mergers. Unlike the existing literature which examines the
operating performance of mergers at end level (ROA or ROE), we not only examine
the operating performance at end level but also analyze the performance at each
stage of operation i.e. material,
labor, overheads, tax, interest and sales. We do not find synergy creation at
the end level (i.e. ROA level).
However, we observe synergy creation at tax and interest level and synergy
destruction at labor and overheads level. The performance of different
categories of mergers which are group/non-group mergers, related/unrelated
mergers and BIFR/non-BIFR mergers is also examined. Factors explaining the
post-merger profitability, efficiency and cash flows are also examined.
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