Subprime Crisis – A Corporate Acquisition Opportunity?

VISHAL SRIVASTAVA; SUNDER RAM KORIVI; DIPASHA SHARMA

doi:10.31966/jabminternational.v28i2.546

VISHAL SRIVASTAVA PhD Scholar, Under the Faculty of Management, Symbiosis Centre for Research & Innovation (SCRI), Symbiosis International University Gram: Lavale, Tal: Mulshi, Dist: Pune - 412115
SUNDER RAM KORIVI, Ph.D Senior Consultant, Department of Economic Affairs and National Institute of Financial Management Research Programme, Faridabad – NCR Delhi
DIPASHA SHARMA, Ph.D Assistant Professor, Finance Symbiosis Centre for Management & Human Resource Development, Plot No. 15, Rajiv Gandhi Infotech Park, Hinjewadi, MIDC, Dist: Pune – 411057

DOI: https://doi.org/10.31966/jabminternational.v28i2.546

Abstract

Corporate acquisition can be considered as one of the best processes of corporate restructuring. This study is focused to evaluate the post-acquisition operating performance of listed Indian companies (acquirers) which have made acquisitions during subprime crisis period i.e. from FY 2007-08 to FY 2009-10. Paired sample t-test has been used on four operating performance indicators i.e. Return on Equity(ROE), Return on Assets (ROA), Operating Profit margin (OPM) and Operating Cash flow to Net Sales ratio (OCF/Net Sales) to check whether operating performance of acquirers has significantly improved post-acquisition. This study has revealed that there is no significant improvement in firms’ operating performance based on financial parameters i.e. Return on Equity (ROE), Return on Assets (ROA) and Operating Profit Margin (OPM), post corporate acquisitions made during subprime crisis period. The study finds that there was negative impact based on these parameters. Though Operating Cash Flow to Net Sales ratio has improved significantly for the companies which have made acquisition in FY 2007-08 and FY 2008-09 but similar findings could not be achieved for FY 2009-10. This study will find its significance in present scenario wherein corporate acquisitions are seen as the fastest way to achieve growth. Corporate world may derive its growth strategy from this study.

Downloads

Download data is not yet available.

Author Biographies

VISHAL SRIVASTAVA, PhD Scholar, Under the Faculty of Management, Symbiosis Centre for Research & Innovation (SCRI), Symbiosis International University Gram: Lavale, Tal: Mulshi, Dist: Pune - 412115

Vishal Srivastava is a graduate in Mechanical Engineering and M.B.A. in Operations management. He is Phd Scholar under the faculty of Management at Symbiosis International (Deemed University). He has keen interest in the area of mergers & acquisitions and corporate finance. He is the corresponding author and can be contacted at: vishalsr7@gmail.com.

SUNDER RAM KORIVI, Ph.D, Senior Consultant, Department of Economic Affairs and National Institute of Financial Management Research Programme, Faridabad – NCR Delhi

Dr. Sunder Korivi is MA (Economics & Political Science) and PhD from the University of Mumbai. He is a Fellow of the Institute of Chartered Accountants of India, Associate of the Institute of Cost & Works Accountants of India and Associate of the Insurance Institute of India. He is senior consultant at Department of Economic Affairs and NIFM Research Cell.

DIPASHA SHARMA, Ph.D, Assistant Professor, Finance Symbiosis Centre for Management & Human Resource Development, Plot No. 15, Rajiv Gandhi Infotech Park, Hinjewadi, MIDC, Dist: Pune – 411057

Dr. Dipasha Sharma holds a PhD in the area of Banking and Finance from IIT Roorkee. She teaches Financial Management and Commercial Banking. Her area of interest is in financial inclusion, risk management, modeling of banking services and financial economics. She has several publications to her credit.

References

Akben-Selcuk, E., & Altiok-Yilmaz, A. (2011). The Impact of Mergers and Acquisitions on Acquirer Performance: Evidence from Turkey. Business and Economics Journal, BEJ-22, 1-8.
Bertrand, O., & Betschinger, M.-A. (2012). Performance of domestic and cross-border acquisitions: Empirical evidence from Russian acquirers. Journal of Comparative Economics, 40, 413–437.
Bruner, R. F. (2002). Does M&A Pay? A Survey of Evidence for the Decision Maker. Journal of Applied Finance, 48-68.
Clark, K., & Ofek, E. (1994). Mergers as a Means of Restructuring Distressed Firms: An Empirical Investigation. JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, 29(4), 541-565.
Cornett, M. M., & Tehranian, H. (1992). Changes in corporate performance associated with bank acquisitions. Journal of Financial Economics, 31, 211-234.
Cosh, A., & Guest, P. (2001). THE LONG-RUN PERFORMANCE OF HOSTILE TAKEOVERS: U.K. EVIDENCE. University of Cambridge Working Paper No. 215, 1-56.
Dickerson, A. P., Gibson, H. D., & Tsakalotos, E. (1997). The Impact of Acquisitions on Company Performance: Evidence from a Large Panel of UK Firms. Oxford Economic Papers, 49(3), 344-361.
Fassin, Y., & Gosselin, D. (2011). The Collapse of a European Bank in the Financial Crisis: An Analysis from Stakeholder and Ethical Perspectives. Journal Of Business Ethics, 102(2), 169-191.
Ferrer, R. C. (2012). An Empirical Investigation of the effects of Merger and Acquisition on Firm's Profitability. Academy of Accounting and Financial Studies Journal, 16(3), 31-55.
Ghosh, A. (2001). Does operating performance really improve following corporate acquisitions? Journal of Corporate Finance, 7, 151-178.
Guest, P. M., Bild, M., & Runsten, M. (2010). The effect of takeovers on the fundamental value of acquirers. Accounting and Business Research, 40(4), 333-352.
Gugler, K., Mueller, D. C., Yurtoglu, B. B., & Zulehner, C. (2001). The effects of mergers: an international comparison. Working Paper, i-31.
Healy, P. M., Palepu, K. G., & Ruback, R. S. (1992). Does Corporate Performance Improve after Mergers? Journal of Financial Economics, 31, 135-175.
Healy, P. M., Palepu, K. G., & Ruback, R. S. (1997). Which Takeovers Are Profitable? Strategic or Financial? Sloan Management Review, 38(4), 45-57.
Kaplan, S. (1989). The effect of Management Buyouts on operating performance and Value. Journal of Financial Economics, 24, 217-254.
Kaplan, S. N., Mitchell, M., & Wruck, K. (2000). A Clinical Exploration of Value Creation and Destruction in Acquisitions. In S. N. Kaplan, Mergers and Productivity (pp. 179-238). University of Chicago Press.
Kumara, N. M., & Satyanarayana. (2013). Comparative Study of Pre and Post Corporate Integration through Mergers and acquisition. International Journal of Business and Management Invention, 2, 31-38.
LINDER, J. C., & CRANE, D. B. (1992). Bank Mergers: Integration and Profitability. Journal of Financial Services Research, 7, 35-55.
Linn, S. C., & Switzer, J. A. (2001). Are Cash Acquisitions associated with better postcombination operating performance than stock acquisitions. Journal of Banking and Finance, 25, 1113-1138.
Manson, S., Powel, R., Stark, A., & Thomas, H. (2000). Identifying the sources of gains from takeovers. Accounting Forum, 24(4), 319-343.
Mantravadi, P., & Reddy, A. V. (2008). Post-Merger Performance of Acquiring Firms from Different Industries in India. International Research Journal of Finance and Economics, 22, 192-204.
Martynova, M., & Renneboog, L. (2008). A century of corporate takeovers: What have we learned and Where do we stand. Journal of Banking and Finance, 32, 2148–2177.
MISHRA, P., & CHANDRA, T. (2010). Mergers, Acquisitions and Firms’ Performance: Experience of Indian Pharmaceutical Industry. Eurasian Journal of Business and Economics, 3(5), 111-126.
Neethu, T., Viswanathan, R., & Arun, T. (2018). Mergers and Acquisitions Waves in India. International Journal Of Management Studies, V(Special Issue 4), 17.
Parrino, J. D., College, B., & Harris, R. S. (1999). Takeovers, Management Replacement, and Post-Acquisition Operating Performance: Some Evidence From the 1980s. Journal of Applied Corporate Finance, 11(4), 88-97.
Pawaskar, V. (2001). Effect of Mergers on Corporate Performance in India. Vikalpa, 26(1), 19-32.
Rahman, R. A., & Limmack, R. (2004). Corporate Acquisitions and the Operating Performance of Malaysian Companies. Journal Business Finance and Accounting, 31(3 & 4), 359-400.
Ramakrishnan, K. (2008). Long-term Post-merger Performance of Firms in India. Vikalpa, 33(2), 47-63.
RAMASWAMY, K. P., & WAEGELEIN, J. F. (2003). Firm Financial Performance Following Mergers. Review of Quantitative Finance and Accounting, 20, 115-126.
RAVENSCRAFT, D. J., & SCHERER, F. .. (1989). THE PROFITABILITY OF MERGERS. International Journal of Industrial Organization, 7, 101-116.
RAVENSCRAFT, D. J., & SCHERER, F. M. (1987). LIFE AFTER TAKEOVER. THE JOURNAL OF INDUSTRIAL ECONOMICS, 46(2), 147-156.
Reddy, K., Nangia, V., & Agrawal, R. (2014). The 2007–2008 Global Financial Crisis, and Cross-border Mergers and Acquisitions. Global Journal Of Emerging Market Economies, 6(3), 257-281. doi: 10.1177/0974910114540720
Sharma, D. S., & Ho, J. (2002). The Impact of Acquisitions on Operating Performance : Some Australian Evidence. Journal of Business Finance & Accounting, 29(1&2), 155-200.
Switzer, J. A. (1996). Evidence on Real Gains in Corporate Acquisitions. Journal of Economics and Business, 49, 443-460.
W.Melicher, R., & Rush, D. F. (1974). Evidence On the Acquisition-Related Performance of conglomerate Firms. The Journal of Finance, 29(1), 141-149.
Wan, W., & Yiu, D. (2009). From crisis to opportunity: environmental jolt, corporate acquisitions, and firm performance. Strategic Management Journal, 30(7), 791-801.
ZOLLO, M., & SINGH, H. (2004). Deliberate Learning in Corporate Acquistions: Post Acquistion Strategies and Integration Capability in U.S. Bank Mergers. Strategic Management Journal, 25, 1233 - 1256.