The Impact of Mergers and Acquisitions on Company Performance: Evidence from Emerging Capital Markets of Europe
This paper presents the results of a study of insider trading prior to the significant corporate events of the Russian public companies in 2005–2015. We detected the difference in the volumes of trading of Russian stocks and depositary receipts. The study is based on an analysis of cumulative abnormal returns (ACAR) and abnormal trading volumes (AAV) during the period prior to the announcement of such events as announcements of M&As, SPOs, special dividend payments and delistigs of the stocks. The research detected the insider trading symptoms in common shares trading prior to the announcements of M&A deals, special dividend payments and delistings of the stocks. We have found positive ACAR and AAV prior to the announcement of the events. The numbers grew as long as the day of event came closer and reached its peak in a day before the announcement. The symptoms of a large insider trading prior to SPO announcements were not detected. Finally we did not find any symptoms of large insider trading in depositary receipts trading on the Russian stock market. The share of ACAR, gained before the day of event amounted 40% in case of common stocks and 60% in case of depositary receipts. The abnormal volumes of trades also were 1.5 times higher in case of common stocks. We suggest new criteria of detecting insider trading (to compare share of CAR, realized prior to the event, in case of depositary receipts and common stocks) and
the results of the study suggests that this methodology could be applied to the Russian stock market.
For today in academic literature there is no consensus about what factors determine the probability of a company to participate in M&A deals. Determinants of company’s M&A activity seem to be the issue of current importance. During the corporate life cycle there are changes in most company’s financial indexes. That is why the corporate life cycle stage may have a significant influence on the possibility of a company to take part in M&A. Thus, the main aim of this study is to analyze the influence of corporate life cycle stages on the probability of a company to participate in M&A deal from the perspective of acquiring firms in the developing capital markets. The analysis was provided for BRICS companies as the main drivers of M&A market. In this study for the identification of corporate life cycle stage the modified methodology of Anthony and Ramesh (Anthony, Ramesh, 1992) has been used. The application of this methodology to the emerging capital markets requires some specific adjustments of the indicators which are used in the original model. To study the influence of corporate life cycle stages on the probability of a company to participate in M&A two logistic regressions have been used. The empirical evidence from the sample of BRICS listed companies during the period from 2010 to 2013 shows the significant differences in the probability to participate in M&A deal as a buyer on the different life cycle stages. The possibility of a company to participate in M&A declines from stage to stage during the corporate life cycle. Moreover, the different influence of the same factors at various life cycle stages has been proved empirically. The research reveals the necessity of taking into account the company’s life cycle stage while investigating the probability of participation in M&A deal.
Citation: Partin I., Vasin A. (2014) Vliyanie stadii zhiznennogo tsikla kompanii na veroyatnost' ee vstupleniya v sdelku M&A na razvivayushchikhsya rynkakh kapitala [The Influence of Corporate Life Cycle on M&A Activity of the Company in Developing Capital Markets]. Journal of Corporate Finance Research, no 3 (30), pp. 23-37 (in Russian)
Keywords: mergers; corporate life cycle; acquisitions; M&A activity; M&A determinants
M&A decisions are vital for long-term development of emerging market companies. Existing research pays little attention to studying structure of synergy and valuation of synergy in M&A deals, initiated by private companies.
Therefore, there are no inclusive methods exist to analyze different components of financial and operating synergy. This article aims to systematize existing literature about synergy and validate theoretical model suitable for synergy valuation in M&A deals in Russia. We also test several empirical hypotheses about synergy structure during growth and crisis periods on Russian M&A market.
In the introductory part of the article we discuss concept of synergy in M&A deals and types of synergy. In the second part we review academic literature related to valuation of different components of operating and financial synergy. In the third part we develop inclusive valuation method for five components of synergy. We formulate hypotheses and discuss data sample in part four. In part five we test hypotheses on empirical data using our model and discuss significant results.
This article may be useful for company management and investment analysis to estimate value of prospective M&A deals.